The countdown to 2025 has started, and the IRS just dropped the new contribution limits for 401(k)s.
If you're thinking about tucking money away in a 401(k), you'll want to pay attention to the new limits so you can plan ahead. Plus, a new contribution perk kicks in for 2025 that could sweeten your retirement savings pot if you qualify.
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The standard 401(k) contribution limits for 2025 are going up
Starting in 2025, employees can sock away up to $23,500 in their 401(k)s. That's a $500 bump from the $23,000 elective deferral limit for 401(k) plan employee contributions in 2024. That might not sound like a big deal now, but an extra $500 invested can pay off over the long term.
If you and your employer are both contributing to your 401(k), the total contributions to the account can't exceed $70,000 in 2025. That's up from $69,000 in 2024.
Here's what you need to know if you're over 49
Getting older has its perks in the retirement world. For one, the IRS lets you contribute a bit more to your retirement savings to help you reach your goals. This extra boost is called a catch-up contribution.
For employees aged 50 and older with a 401(k), the catch-up contribution limit will stay at $7,500 in 2025, the same as in 2024. That's on top of the standard $23,500 limit for everyone else, bringing the total to $31,000.
But it doesn't stop there. When you add in the total employee and employer contribution limit -- including the catch-up amount -- the combined limit climbs to $77,500.
Here's a table summarizing the contribution limits:
| 401(k) Plan Limits | 2025 | 2024 |
|---|---|---|
| Maximum elective deferral for employees | $23,500 | $23,000 |
| Total contribution limit for employer and employee | $70,000 | $69,000 |
| Catch-up contribution for employees age 50 and older | $7,500 | $7,500 |
Data source: IRS. Chart by author.
If you have extra cash and want to beef up your retirement savings, consider parking some of it in your 401(k). If you're in a position to max out your accounts, you could hit the six-figure mark within just a few years, depending on how your investments perform.
A big change is coming in 2025
Thanks to the SECURE 2.0 Act, some retirement savers are getting an extra boost. If you're age 60, 61, 62, or 63, you'll see a higher catch-up contribution limit. Instead of the usual $7,500, you can set aside up to $11,250 in extra contributions in 2025.
Although these changes are set to kick in next year, it's smart to double-check with your employer for specific details about your 401(k) plan. Ask about the updates to ensure everything is set up correctly and ready for the changes. The more you know now, the better prepared you'll be to plan ahead.
Should you max out your 401(k)?
You might be wondering how much you should contribute to your 401(k). Some people aim to contribute just enough to get the employer match, while others go all in and max out their accounts. According to Vanguard's 2024 How America Saves report, only 14% of employees contributed the maximum amount to their 401(k) plans in 2023.
If you're not maxing out, you're not alone. And quite frankly, it might not be the best move if you're struggling to cover your monthly expenses.
Start by reviewing your income and expenses to see if adjustments are needed, and consider creating a budget to help you stay on track. Also, take a look at all your retirement accounts to get a full picture of where you stand. Instead of maxing out your 401(k) first, you might want to focus on fully funding your individual retirement accounts (IRAs) and making the most of their potential.
Take the next few weeks to evaluate your options and review your finances. With a little planning, you'll be ready to crush your 401(k) goals in 2025.
