The new year brings several changes to 401(k) plans across the country. The contribution cap for all employees in 2025 is $23,500, a $500 increase from last year. Employees over the age of 50 can make additional catch-up contributions of up to $7,500.
Starting in January, workers between the ages of 60 and 63 can make a catch-up contribution of up to $11,250, bringing their total contribution limit to $37,750. These changes are part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed by Congress in 2022. The increase represents the largest in nearly two decades, prompting experts to encourage older investors to take full advantage of these new limits.
“I think it’s huge,” said Bob Canterbury, Senior Wealth Advisor at Dopkins Wealth Management. “Don’t forget that a 401(k) continues to grow even after you retire, so maybe you’re not contributing anymore, but the dollar is in there.”
Another significant change in 2025 is the new auto-enrollment requirement. Employers must enroll all qualified employees at a minimum 3% contribution rate, with corresponding increases of 1% each subsequent year until reaching 10%.
There are some exemptions for smaller businesses with a staff of 10 or fewer, plans established before December 2022, and certain churches and government retirement plans.
Increasing 401(k) contribution limits
Employees have the option to opt out, but the goal is to encourage broader participation in 401(k) plans.
“The vast majority of people who are auto-enrolled just keep it that way. They don’t change it, they don’t shut it off, they don’t reduce it,” Canterbury said. “I think it’s going to work in the long run that those folks will have balances in there, and in many cases, they will be receiving company matches on contributions that otherwise might not have been put into the plan.”
If you’re eager to max out your 401(k) plan early in 2025, you could miss part of your employer’s matching contribution without the “true-up” feature.
The true-up deposits the rest of your company’s 401(k) match if you max out employee deferrals before year-end. Roughly 67% of 401(k) plans that offer more than annual matches had a true-up in 2023, according to a yearly survey by the Plan Sponsor Council of America. Aiming to max out contributions early in the year without understanding your 401(k) plan’s features could lead to missing out on full employer matches.
Front-loading contributions maximizes time in the market, which can be beneficial, according to research from Vanguard released in 2023. However, it’s important to note that not all plans offer a true-up feature. Experts recommend that investors review their 401(k) accounts once or twice a year to ensure they are meeting their financial goals.
For more personalized advice, consult with your financial planner to understand the best strategy for your retirement savings.