Personal Finance

401(k)s Have New Maximum Limits in 2025 - Are You Getting the Most From Your Plan?

Maurie Backman

Published: February 27, 2025 8:41 am

Employer-sponsored 401(k)s have long had a couple of benefits over IRAs. First, many 401(k) plans come with an employer match, which is free money for your retirement. Secondly, 401(k) plans have long had much higher annual contribution limits than IRAs.

In 2025, workers under 50 can contribute up to $23,500 to a 401(k), whereas with an IRA, the limit is only $7,000. The catch-up contributions associated with 401(k)s are also higher.

This year, workers 50 and over can make a $1,000 IRA catch-up. For a 401(k), that catch-up is worth $7,500.

But that’s not all. A new rule now makes it possible for workers on the cusp of retirement to pump even more money into their 401(k) plans. And it’s an option you may want to take advantage of if you’re behind on retirement savings.

Introducing the new super 401(k) catch-up

There’s a new provision available this year for workers aged 60 to 63 who have a 401(k). People in this age range can make a 401(k) catch-up of $11,250.

To be clear, that $11,250 is not on top of the typical $7,500 catch-up — it’s an “instead of” situation. But all told, workers between the ages of 60 and 63 have the potential to contribute $34,750 to their 401(k)s this year. And that’s worth doing for anyone who’s behind on retirement savings and needs to give their nest egg a last-minute boost.

Not only could setting that extra money aside lead to more retirement income, but it could also mean shielding more income from taxes in the near term.

Remember, contributions to a traditional 401(k) go in tax-free. And investment gains are tax-deferred. So all told, funding a 401(k) to the max makes sense for a lot of people.

Of course, not everybody can afford to max out a 401(k). But at the very least, you should try to put enough money into yours to claim your workplace match in full. Otherwise, what you’re effectively doing is saying “no thanks” to free money your employer is willing to give you.

Make sure your 401(k) is invested appropriately

It’s a good thing to max out your 401(k) plan regardless of your age. But it’s just as important to make sure your 401(k) is invested in an age-appropriate manner.

If retirement is far off, you may want to take on more risk in your 401(k) by loading up on broad market index funds. But as you get older and retirement gets closer, it’s important to adjust your 401(k)’s risk profile so you’re investing more conservatively.

If you have your 401(k) invested in a target date fund, though, then this is something you may not have to worry about. That’s because target date funds automatically adjust your 401(k)’s risk profile based on your age, and how close to retirement you are.

That said, target date funds have their drawbacks. They’re notorious for charging high fees. And they also tend to err on the side of investing too conservatively. So while they may be convenient, they won’t necessarily yield the results you’re after in your 401(k).

If you’re not sure if your 401(k) is invested the way it should be, it’s a good idea to consult qualified financial advisor. An advisor can review your current 401(k) investment mix and make suggestions based on the investment choices offered by your plan. They can also tailor that advice based on your age, retirement date, and long-term goals.