Updates to 401(k) contribution limits and rules in 2025 offer new opportunities for workers to bolster their retirement savings. Whether you’re a seasoned saver or just starting your retirement journey, understanding these changes can help you make the most of your contributions. Here’s a closer look at what’s changing and how it could affect your financial planning.
Boost Your Savings with Higher Contribution Limits
The IRS regularly adjusts 401(k) contribution limits to keep pace with inflation, and 2025 is no exception. The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500, up from $23,000.
This adjustment is an advantage for savers looking to maximize tax-advantaged growth. Higher limits mean more opportunity to set aside funds, potentially reducing your current taxable income while building your retirement nest egg.
What’s New with Catch-Up Contributions
A significant shift is coming for 401(k) catch-up contributions due to the SECURE 2.0 Act, designed to help older workers save more for retirement.
Starting in 2025, individuals aged 60 to 63 can contribute up to $11,250 in catch-up contributions—significantly higher than the $7,500 limit for those 50 and older.
For high earners making $145,000 or more, catch-up contributions must be made to a Roth 401(k), using after-tax dollars. While this increases your current tax liability, withdrawals in retirement will be tax-free, offering long-term benefits. Those earning less than $145,000 can continue making catch-up contributions to traditional pre-tax 401(k)s.
This change could significantly affect your tax strategy. If you are in this category, now is the time to reassess your financial goals and retirement plan to align with these new requirements.
RELATED: Read about retirement planning in a changing world.
New Savings Opportunities for Younger Employees
New legislation aims to encourage younger workers to save more by offering incentives or additional savings opportunities for employees in their early careers. While details are still emerging, these changes could include employer contributions or matching programs tailored to younger savers, providing an excellent opportunity for those just entering the workforce.
How to Prepare for These Changes
- Review Your Current Contributions: Take a close look at how much you’re currently saving and how these new limits will impact your ability to contribute more.
- Evaluate Your Tax Strategy: With changes to Roth catch-up contributions, consider how your tax situation might shift and consult with a financial advisor to make the most tax-efficient choices.
- Plan for Long-Term Growth: If you’re a younger worker, investigate whether your employer will offer new savings incentives and make sure you’re taking full advantage.
- Speak with Your Advisor: Navigating these changes can be complex. A financial advisor can help you align your retirement plan with these updates while ensuring you’re on track to meet your goals.
Whether you’re adjusting to new contribution limits, optimizing your tax strategy, or just starting to think about retirement, let our advisors guide you on the right path. Reach out to our team at 412-630-6000 or contact us here.
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