IRS boosts 401(k) contribution limits for 2025, adds "super catch-up" for 60-63 year olds

You can contribute $500 more in 2025, and older workers can save even more

Published November 6, 2024 8:30AM (EST)

Investing your money for retirement through 401K plan.
Investing your money for retirement through 401K plan.

Saving for retirement? You can put more money in your workplace plan next year. The IRS has increased the 401(k) contribution limit to $23,500 in 2025 from $23,000 in 2024, according to a Friday announcement

The $500 increase also applies to other workplace retirement vehicles such as the 403(b), 457 plan, and Thrift Savings Plan. 

Each year, the IRS can make changes to contribution limits due to cost-of-living adjustments. The agency also announced a big boost to catch-up contributions for workers who are 60 to 63 years old. 

Catch-up contributions 

Catch-up contributions aim to help employees nearing retirement. These have set limits, but allow employees of a certain age to save even more than the traditional limit. 

“The catch-up is designed to allow older workers who were not able to put away enough money in their younger years to put larger contributions away now, thereby catching up,” said Lawrence Sprung, certified financial planner, founder of Mitlin Financial and author of "Financial Planning Made Personal."

If you’re 50 and over, you can save an additional $7,500 in your 401(k), an amount unchanged for 2025. In other words, 50+ savers can max out their 401(k) by contributing up to $31,000 in 2025. 

But thanks to the SECURE 2.0 Act, those between 60 and 63 years old have a higher catch-up contribution limit of $11,250 in 2025. That’s a significant hike, allowing these employees to contribute a total of $34,750 into their 401(k) plan in 2025. 

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“Employees, especially if they are currently maxing out or are turning 50, 60, 61, 62, or 63 should make sure they are taking advantage of the new limits available to them,” said Sprung. “They may want to update their contributions beginning on Jan. 1, 2025, to reflect the new increased limits. Waiting later into 2025 may require the employee to put in too much each paycheck to hit the newly raised limit.”

The struggles of maxing out a 401(k) 

Despite the higher contribution limits, only a small percentage of workers end up maxing out their 401(k), leaving them vulnerable and with few resources for retirement

“Only about 14% of the people are maxing out their 401(k) and that is the problem. If people really are paying attention, pensions are disappearing, Social Security's got a big mess coming up in about 10 years. And if people are going to have a real meaningful retirement, they better start saving,” said Steve Azoury, chartered financial consultant and owner of Azoury Financial

When broken down to monthly payments, to max out your 401(k) in 2025 and contribute  $23,500 you’d need to save approximately $1,958 per month. That’s a big chunk of change for most people and could be equivalent to their housing payment. 

For those with more discretionary income, contributing up to the limit can offer the most tax benefits and also set them on the right path to building their nest eggs.

Others with limited resources still have options. 

What to do if you can’t max out 

Depending on your income and expenses, contributing up to the limit to your 401(k) may be out of reach. But that doesn’t mean you shouldn’t invest in your 401(k) or take advantage of your employer match — funds that are an integral part of your compensation package. Not taking advantage epitomizes the phrase “leaving money on the table.”

So if you can swing it, contribute enough to your 401(k) to get the full company match. Employers may match a specific percentage. For example, the median employer match is 4%, according to the How America Saves Report 2024 by Vanguard. So let’s say you put in 4%, and your employer matches that amount with another 4%. In this case, you double the contribution to 8% of your salary. 

Even if you can’t do 4%, contributing something on a consistent basis is better than nothing. It helps you pad your 401(k) and allows it to grow. 

However, note that not all employers provide a match, or they may not provide a full one. According to the Vanguard report, 16% of plans had a match formula of 50% on first 6% of pay, making it the most popular option. Coming in the second spot, 10% of plans had a match formula of 100% on the first 6% of pay.

Forty percent or more of small-business employers don’t offer retirement benefits, according to analysis by The Pew Charitable Trusts.

Why you should invest in your 401(k) 

If you have access to a 401(k) and a match, there are some major tax benefits that you can take advantage of by contributing. 

“The money is on a pre-tax basis. So let's say I made $50,000 and I put in $5,000. Well, I only pay income taxes on $45,000. So whatever I put in reduces my taxable income,” said Azoury.

So you can be rewarded for saving in your 401(k) with tax benefits for the current year. But you can’t avoid the tax man forever. Instead, you pay taxes on 401(k) withdrawals when you retire. But that may work in your favor. 

“You pay no taxes now, it can earn interest in an investment. You don't pay taxes on the gain yet. And then when you retire and you're in a lower tax bracket, that's when you want to pay your taxes. You don't want to pay them now when you're in the highest tax bracket. And if your income is the same retired as working, God bless you. You win,” said Azoury. 

Making the most out of your 401(k)

To make sure you’re getting the most out of your 401(k), understand your personal risk tolerance while investing and your ideal time horizon. How much risk you can stomach will determine the course of your investments, and so will the amount of time you have until retirement. 

“For effective ways to invest periodic contributions, seek the help of the plan’s adviser or a personal financial adviser. Diversification is very important,” said certified financial planner William Bevins.

You want your 401(k) to work for you while you’re working for them so that eventually, one day, you have the option to retire. 


By Melanie Lockert

Melanie Lockert is a freelance writer with a decade of experience in the personal finance space. She is the founder of the blog and author of the book “Dear Debt” and paid off $81,000 in student loans.

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