One of the most critical aspects of financial planning is saving for retirement. Most people utilize employer-sponsored 401(k) and 403(b) plans, and some opt to supplement those plans with Individual Retirement accounts (IRAs).
These savings plans are easily accessible but are subject to contribution limits set by the Internal Revenue Service (IRS).
Contribution limits are capped to prevent unfair advantages by ensuring that high earners can't exploit the tax benefits of saving with pre-tax dollars.
In 2024, the maximum an individual could contribute to their 401(k) combined with employer match was capped at $69,000, excluding catch-up contributions for workers over 50.
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The 401(k) contribution limits will increase again in 2025, allowing workers to increase their annual retirement contributions.
Lazetta Braxton, CFP, Founder and Managing Principal of The Real Wealth Coterie, shares tips for workers to plan their retirement savings heading into the new year and ensure they take full advantage of their retirement accounts.
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Plan your paycheck contributions and track your progress
The IRS recently announced the new 2025 retirement contribution limits, meaning workers should adjust their paycheck allocation accordingly. 401(k) contributions will increase to $23,500, but IRA contributions will stay flat at $7,000.
Catch-up contributions for workers 50 and over will also stay at $7,500.
Though inflation has cooled throughout most of 2024 and has dropped considerably from its peak in 2022, years of sustained high consumer prices have meant three consecutive years of 401(k) contribution limit increases.
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Braxton explains why this increase will help consumers maximize their retirement accounts and why tracking your contributions is so impactful.
“I encourage people to take a look at their paycheck and see what they have contributed to their retirement accounts year to date,” she said. “We're getting close to the end of the year, so it may be difficult to reach those limits this year.”
“For 401(k), 403(b) retirement plans, an individual can contribute up to $23,500 in 2025. So, check with your payroll department,” she explained. “If you are on twenty-six pay periods, you can divide that amount over the course of the year and start setting a goal. If you can't reach $23,500, at least set a goal for what you’d like to hit next year.”
Calculating how much you’re actually contributing each pay period based on your paycheck amount and contribution percentage allows you to understand how close you are to reaching IRS limits.
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Pay attention to contribution limits for your age
2025 will also bring a new provision to help workers approaching retirement maximize their savings plans. As part of the Secure 2.0 Act, those aged 60-63 can now contribute up to $11,250 in “super catch-up” contributions.
However, those aged 50-59 will still be subject to the standard $7,500 catch-up contributions.
Related: The average American faces one major 401(k) retirement dilemma
Braxton highlights the importance of understanding how contribution limits work and what it means for your financial plan.
“These limits may sound like big abstract numbers, but it's good to have goals and work towards them,” she said. “You need to break down these figures and make them digestible.”
“Take a look at your paycheck and identify the goal that you want to make at the end of the year, and label it as that amount,” she continued. “This is how much money I need to take out of my paycheck, every paycheck.”
There are also nuances between 401(k) contribution limits and IRA limits to be mindful of. Workers have a bit more time to maximize their IRA than their 401(k), as IRA limits follow tax filings instead of the calendar year.
“Now, I mentioned the IRAs that you can invest in– the nice thing about those is that you can contribute up to the tax filing date of April 15,” she explained. “When we're talking about employer plans, that is a hard stop at the end of the year.”
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