Vanguard Targets ‘Max Savers’ With New Financial Wellness Tool

In an effort to target “max savers”—plan participants at the brink of reaching the limit for retirement plan contributions—Vanguard has developed a new tool that can help participants maximize their savings in the most tax-advantaged way. 

Dina Caggiula, head of participant experience at Vanguard, explains that the Retirement Savings Maximizer, which the firm has been rolling out for the past month, is meant to help participants save to the IRS 402(g) limit or beyond. 

The online tool is built into the recordkeeping platform and includes a calculator that allows a participant to enter their current income, allowing Vanguard to provide a projection of how much that person should be saving for retirement, as well as for other goals like a new home or college education. Along with these projections, the participant also has access to financial education materials and advice services. 

The IRS limits the amount of retirement plan elective deferrals a participant can exclude from taxable income each year. The 402(g) limit for 2024 is $23,000, an increase from the 2023 limit of $22,500. This limit applies to 401(k) plans, 403(b) plans, SEPs and SIMPLE IRAs.  

“Largely why we built the [Retirement Savings Maximizer] tool was [because] we have 16% of our participant base that’s hitting the 402(g) limit every year or coming within $5,000 of doing so,” Caggiula says. “We did a lot of research on that population, and what we found was that where they’re saving after the 401(k) pre-tax source varied significantly, and many were unaware of how they can save in a tax-maximized way.” 

Caggiula says the Retirement Savings Maximizer will be available to all plans and participants that use Vanguard as a recordkeeper. However, Caggiula explains that the tool will be marketed heavily toward “max savers” who are nearing the 402(g) limit or toward those who have already hit the limit and are looking for advice on where else they can save beyond their retirement account. These savers tend to have a longer tenure with Vanguard and have been in their plan for at least 10 years. 

Caggiula says these savers also tend to have larger balances, with the average greater than $400,000. 

“They are an audience that is frequently engaging with our digital experience and are also more engaged with reaching out to our contact center and are more interested in our advice solutions,” Caggiula says. 

She adds that more than 40% of Vanguard’s max savers tend to hit the IRS limit within the first three-quarters of the year, which is why the firm is rolling out the tool early this year.  

“We’re helping guide participants after [they’ve] maybe hit the limit in their pre-tax [retirement plan] to see if there is [a health savings account] available [to contribute to] or if there is an after-tax [Roth] plan available to them,” Caggiula says.  

Vanguard’s tool recommends a “tax-advantaged savings hierarchy” with up to five steps participants can follow to become a “max saver.” These steps include: 

1. Meet your employer’s retirement match;
2. Contribute the maximum amount to a health savings account (if you are eligible to do so); 
3. Max out 401(k) pre-tax or Roth contributions; 
4. Make 401(k) traditional after-tax contributions; and 
5. Consider saving in an IRA outside the retirement plan. 

Caggiula says this is one of the first times Vanguard has built a solution that guides participants to save beyond a 401(k) plan and to consider other options like an HSA or IRA. She said this focus emphasizes the importance of thinking about participants’ “full financial picture” to help them achieve a successful retirement beyond just their defined contribution plan.  

“At the highest level, we believe that to truly help participants reach retirement success, we have to address those competing priorities that are getting in their way,” Caggiula says. “We want to make sure that we’re thinking about the spectrum of different needs that participants have, so that we can send them the personalized guidance and tools that they’re going to need to succeed.”