The Internal Revenue Service (IRS) has announced higher contribution limits for 401(k) plans in 2024 and 2025. In 2024, the employee contribution limit will increase to $23,000, with the catch-up contribution for those over 50 remaining at $7,500. The combined contribution limit for an employee and employer in 2024 will be $69,000, excluding any catch-up contributions.
For 2025, the employee contribution limit will rise to $23,500. The annual catch-up amount for those over 50 will stay at $7,500. However, a new catch-up contribution limit for workers aged 60 to 63 will increase to $11,250, bringing their total deferral limit to $34,750.
The combined limit for employee and employer contributions in 2025 will increase to $70,000. Financial experts suggest that now is the time to start boosting 401(k) contributions to maximize these higher limits for 2025.
Higher 401(k) limits for 2025
Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, emphasizes the significant benefits of the increased catch-up contribution limit for a subset of savers. Catherine Valega, a Boston-area CFP and enrolled agent, and founder of Green Bee Advisory, notes that it may take time before the general public is aware of the new opportunity, but boosting contributions later could still be beneficial for savers in this age range. Experts advise adjusting 401(k) deferrals for 2025 now, as it typically takes a couple of pay periods for changes to go into effect.
Missing bigger deposits early can be compensated for by boosting deferrals later in the year, but higher percentages could impact cash flow more than people are typically willing to manage. Despite the benefits of maximizing contributions, many workers cannot afford to max out their 401(k) plan every year. According to Vanguard’s 2024 How America Saves report, only roughly 14% of employees managed to do so in 2023, based on data from 1,500 qualified plans and nearly five million participants.
Contributing to a 401(k) offers significant tax advantages and can help ensure financial security in retirement. Each year, the IRS increases the contribution limits, offering more opportunities to save for the future. Experts recommend revisiting your contribution strategy annually and taking full advantage of employer matching and catch-up contributions to maximize your retirement savings.
