Maximizing Your Company Retirement Contributions in 2025
As the new year approaches, it is time to review your company retirement savings strategy. As of November 1, the IRS has announced the increased 2025 standard contribution and catch-up contribution limits. To fully benefit from these changes, it’s critical to understand them and plan accordingly.
1. Higher Contribution Limits:
The most notable change is the increase in contribution limits for various retirement accounts, including 401(k)’s and 403(b)’s. The base contribution limit for both will rise to $23,500, up from $23,000 in 2024.
While this is a modest increase, when it comes to retirement planning, the additional compounded growth on it can be meaningful. A 30-year-old who contributes an additional $500 per year thru age 65 will see those contributions accumulate to nearly $75,000 of added wealth, assuming a conservative 7% rate of return.
2. Standard Catch-Up Contributions Increase:
For individuals aged 50 and older, the “standard” catch-up contribution remains a powerful tool. In 2025, the catch-up limit for 401(k) and 403(b) plans will remain $7,500. This means eligible individuals can contribute up to a total of $31,000 to their 401(k) or 403(b) accounts.
These higher limits are an excellent opportunity for those approaching retirement to accelerate their savings. A 50-year-old who contributes an additional $7,500 to her 401(k) each year through age 59 will have saved an additional $75,000. At a 7% growth rate, those contributions could be worth an additional $104,000 at age 60.
3. New Special Catch-Up for Ages 60-63:
One of the most interesting and confusing changes applies to individuals aged 60 to 63, with a new “special catch-up” provision taking effect. For 401(k) and 403(b) plans, individuals in this age range will have a higher catch-up contribution limit of $11,250.
For 2025, this means those aged 60 to 63 can contribute up to $34,750. This provision provides a final boost to an individual’s savings efforts. Using the same 50-year-old from the preceding paragraph, if that individual contributed the standard catch up from ages 50 through 59, and then the special catch up from 60 to 63, the aggregate value of those contributions could be worth an additional $186,000.
Taking Action
To maximize these new opportunities, it is vital to update your retirement plan contributions early in 2025.
- For employees: Contact your HR or benefits department to adjust your payroll deductions and ensure your payroll deductions reflect these changes.
- For the self-employed: Consult your financial advisor to align your contributions with the new limits.
These changes provide new and expanded opportunities for anyone saving for retirement and proactive action now can make a meaningful difference in your retirement security. If you have any questions about how these changes may affect your plan, we’re here to help!
