1 Major 401(k) Contribution-Limit Change Coming in 2025

A Northwestern Mutual survey revealed that American adults believe they need about $1.46 million saved to retire comfortably. In reality, many people fall far short of that goal. According to Vanguard's "How America Saves 2024" report, the average 401(k) savings for those over age 54 still falls short of $300,000.

The IRS recently released the updated 401(k) contribution limits for 2025. There's one notable change that could be particularly helpful for those aiming to get closer to their retirement goals -- assuming you have the extra funds to take advantage of it.

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2025 401(k) contribution limits that you should know

Now's the perfect time to start planning for 2025, and retirement accounts are a great place to focus. If you have a 401(k), it's a powerful way to save for your future. Plus, your employer might even chip in to boost your retirement savings. But there are contribution limits you'll want to keep in mind.

Let's start with the regular limits. Here are the 2025 cost-of-living adjustments the IRS just announced for 401(k) plans.

Data source: IRS. Chart by author.

One change you don't want to overlook in 2025

If you're over 59 and still working, the latest IRS announcement is worth your attention. A change in the SECURE 2.0 Act could help you boost your retirement savings in 2025 -- if you have the extra funds to set aside.

Let's look at the numbers. For employees aged 60, 61, 62, and 63, the 401(k) catch-up contribution limit is getting a facelift. Instead of the usual $7,500, those in this age cohort can now contribute up to $11,250 in catch-up contributions. Add that to the regular $23,500 401(k) contribution limit for employees, and you're looking at a maximum contribution of $34,750 in 2025.

When you factor in employer contributions, eligible individuals could potentially see their total contributions reach as high as $81,250 in their 401(k) plans in 2025.

A few housekeeping tips to prepare for the new 401(k) limits

Before you dive into your 401(k) game plan for 2025, there are a few items you might want to check off your list.

• Confirm with your employer: Double-check with your employer to ensure you can make these extra contributions through your workplace plan if you meet the age requirements. A quick conversation can help you understand the process and make sure you're not hit with any unwelcome surprises later.
• Know the deadline: While you have until the end of 2025 to contribute to a 401(k), some employers have specific cutoff dates for making changes. Ask your employer about the last date you can adjust your 401(k) contributions for them to count toward 2025.
• Adjust contributions as needed: Most 401(k) plans let you change your contribution amount at any time. This flexibility allows you to contribute more when you get a windfall or less during tighter months. Be sure to check if your plan limits the number of times you can make changes each year.
• Review your finances: Before deciding how much to contribute, take a moment to assess your income, expenses, and overall financial picture. A quick checkup can help you stay on track and make any necessary tweaks to support your savings goals.
• Revisit your retirement goals: If your employer offers both a traditional and Roth 401(k), consider which option aligns best with your retirement income goals. Think about your anticipated retirement income and how traditional vs. Roth contributions might impact your tax situation down the road.

The new catch-up limit for those aged 60-63 is a great chance to put extra money into a tax-advantaged account. However, keep in mind potential downsides, like account fees and limited investment choices. Do your research now, so by the time 2025 rolls around, you'll be ready to crush your 401(k) goals and make the most of these benefits.

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