The IRS has announced new contribution limits for 401(k) plans in 2025. Employees can now defer up to $23,500 into workplace plans, a $500 increase from last year. The limit on annual contributions to an IRA remains at $7,000.
Older workers have additional opportunities to boost their retirement savings. Employees over 50 can make catch-up contributions of up to $7,500. Those aged 60 to 63 can contribute even more, with a special catch-up limit of $11,250.
This allows them to contribute a total of $37,750 to their 401(k) plans in 2025. These changes are part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed by Congress in 2022. The goal is to improve savings opportunities for Americans.
Bob Canterbury, Senior Wealth Advisor at Dopkins Wealth Management, emphasizes the significance of these changes. “I think it’s huge,” he said.
New 401(k) contribution changes
“Don’t forget that 401(k) continues to grow even after you retire, so maybe you’re not contributing anymore, but the dollar is in there.”
Other notable changes include a new auto-enrollment requirement for 401(k) plans. 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 exemptions for smaller businesses with 10 or fewer employees, plans established before December 2022, churches, and government retirement plans.
Employees can opt out, but the goal is to encourage more workers to participate. Experts recommend reviewing 401(k) accounts once or twice a year to ensure they are performing as expected. More information can be found on the Internal Revenue Service’s website.
If you’re behind on your retirement savings, now is a good time to take advantage of the higher contribution limits. Boosting your contributions in January can help ensure that you max out your contributions for the full year. Maxing out your retirement contributions is an excellent way to grow your nest egg, especially if your employer offers matching contributions.
The typical 401(k) portfolio generates an average annual return of 5% to 8%, according to a survey of retirement planners. Taking advantage of the new super funding option can significantly enhance your retirement savings, setting you up for a more secure financial future.