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

A survey by Northwestern Mutual found that American adults believe they need to save about $1.46 million to retire comfortably. In reality, many people fall far short of this goal. According to Vanguard’s “How America is Saving 2024” report, average 401(k) savings For those over 54, it still remains below $300,000.

The IRS recently released updated 401(k) contribution limits for 2025. There’s one notable change that could be particularly useful 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 you need to know

Now is the time to start planning for 2025, and retirement accounts are a great place to focus. If a 401(k)It’s a powerful way to save for your future. Moreover, your employer may even contribute to increase your retirement savings. However, there are contribution limits you should keep in mind.

Let’s start with normal limits. Here are the 2025 cost of living regulations IRS just announced 401(k) plans.

Data source: IRS. Chart by author.

One change you won’t want to miss in 2025

If you’re over 59 and still working, the latest IRS announcement is worth considering. An amendment to the SECURE 2.0 Act could help boost your retirement savings in 2025 if you have extra money to spare.

Let’s look at the numbers. 401(k) for workers ages 60, 61, 62 and 63 compensation contribution limit is getting a facelift. Instead of the usual $7,500, those in this age group can now make up to $11,250 in catch-up contributions. Add this to the regular $23,500 401(k) contribution limit for employees; 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 up to $81,250 in their 401(k) plan in 2025.

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

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

• Confirm with your employer: If you meet the age requirements, double-check with your employer to make sure you can make these extra contributions through your workplace plan. A quick conversation can help you understand the process and make sure you don’t run into any unwanted surprises later.
• Know your deadline: While you have until the end of 2025 to contribute to a 401(k), some employers have specific deadlines to make changes. Ask your employer about the deadline you can set to count your 401(k) contributions toward 2025.
• Adjust contributions as needed: Most 401(k) plans allow you to change your contribution amount at any time. This flexibility allows you to contribute more when you receive a windfall, or less in tighter months. Be sure to check if your plan limits the number of changes you can make each year.
• Review your financial situation: Before deciding how much to contribute, take a moment to evaluate your income, expenses, and overall financial picture. A quick check can help you stay on track and make the necessary adjustments to support your savings goals.
• Reconsider your retirement goals: If your employer offers both traditional and Roth 401(k)Consider which option best suits your retirement income goals. Consider your projected retirement income and how traditional and Roth contributions may affect your tax situation down the road.

The new catch-up limit for those aged 60-63 is a great opportunity to deposit extra money into a tax-advantaged account. But be aware of potential downsides like account fees and limited investment options. Do your research now so you’ll be ready to exceed your 401(k) goals and make the most of these benefits come 2025.