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Here, author Nick Maggiulli explains that in some cases, doing so can be a mistake due to the potential of locking up wealth until old age for a minimal annual benefit.

What you should know: This debate revolves around the difference between marginal and effective tax rates. Marginal tax rate is the rate on the last dollar earned, while effective tax rate is the average tax rate across all income. The traditional argument for maxing out your 401(k) contributions is based on avoiding a higher marginal tax rate today in exchange for a lower effective tax rate upon withdrawal in retirement.

However, this assumes tax rates remain stable. Maggiulli challenges this assumption, noting that the U.S. government’s increasing debt and spending will likely lead to higher future taxes. This would negate the tax benefits of traditional 401(k) contributions, as future withdrawals could be taxed at higher rates. What's the workaround? Consider Roth accounts or paying taxes now while rates are low to avoid potentially steeper costs down the road.