The Authoritatively Announced 401(k) Contribution Ceilings for 2025 Have Surfaced

The Authoritatively Announced 401(k) Contribution Ceilings for 2025 Have Surfaced

The countdown to 2025 has begun, and the Internal Revenue Service has revealed the new contribution limits for 401(k) plans.

If you're contemplating stashing away funds in a 401(k), you'll want to keep an eye on these new limits so you can plan accordingly. Moreover, a new advantage for 2025 contributes to your retirement savings pot, if you meet the criteria.

The standard 401(k) contribution limits for 2025 are increasing

Effective from 2025, employees can put aside up to $23,500 in their 401(k)s. This is a $500 increase from the $23,000 elective deferral limit for 401(k) plan employee contributions in 2024. While it might not seem like much, an extra $500 can yield significant returns over the long term.

Employees and employers who contribute to a 401(k) cannot contribute more than $70,000 in total to the account in 2025. This is an increase from $69,000 in 2024.

What you should know if you're over 49

Age brings benefits in the retirement world. For instance, the IRS permits older individuals to contribute a little more to their retirement savings to aid in reaching their goals. This added benefit is known as a catch-up contribution.

Maximum elective deferral for employees

For employees aged 50 and above with a 401(k), the catch-up contribution limit will remain at $7,500 in 2025, just like in 2024. In addition to the standard $23,500 limit for everyone else, this brings the total to $31,000.

$23,500

However, the story doesn't end there. When you include the total employee and employer contribution limit, including the catch-up amount, the combined limit escalates to $77,500.

$23,000

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 |

Total contribution limit for employer and employee

For those with spare funds, consider diverting some of it towards your 401(k). If you can max out your accounts, you could reach the six-figure mark in just a few years, depending on your investments' performance.

$70,000

A major shift happens in 2025

$69,000

Courtesy of the SECURE 2.0 Act, some retirement savers will enjoy an additional boost. If you're 60, 61, 62, or 63, you will be eligible for the increased catch-up contribution limit. Instead of the standard $7,500, you can invest up to $11,250 in additional contributions in 2025.

Although these changes are scheduled for 2025, it would be wise to double-check with your employer regarding your 401(k) plan specifics. Inquire about the updates to guarantee everything is in line and ready for the modifications. The more you know now, the better you'll be at planning ahead.

Catch-up contribution for employees age 50 and older

Should you max out your 401(k)?

$7,500

You may be pondering the appropriate amount to contribute to your 401(k). Some focus on contributing just enough to secure the employer match, while others strive to 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.

$7,500

If you're not maxing out, you're not alone. However, it might not be the best strategy if you're struggling to meet your monthly expenses.

Begin by evaluating your income and expenditures to see if adjustments are required, and consider creating a budget to stay on track. Moreover, examine all your retirement accounts to get a clear picture of your status. Instead of maxing out your 401(k) first, you might prefer prioritizing funding your individual retirement accounts (IRAs) and making the most of their potential.

Give yourself a few weeks to assess your options and review your finances. With proper planning, you'll be well-equipped to achieve your 401(k) goals in 2025.

With the increase in the 401(k) contribution limits for 2025, you might want to consider boosting your retirement savings. Employees aged 50 and above can contribute an additional $7,500 as a catch-up contribution, resulting in a total contribution limit of $31,000.

As the contribution limits for 401(k) plans increase, it's essential to consider maximizing your contributions to take full advantage of the increased money in your retirement savings pot. With these additional funds, you could potentially reach a six-figure mark in just a few years, depending on your investments' performance.

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