Photo Credit: dfs.ny.gov
The Internal Revenue Service has announced new limits for how much you can contribute to your 401k in 2025.
Individuals can now contribute up to $23,500 to employer-sponsored retirement accounts including 401(k)s, 403(b)s, most 457 plans and federal Thrift Savings Plans. That's a $500 increase from 2024.
Significantly, those who are at least 50 years old can invest an additional $7,500 in catch-up contributions. This number is consistent with last year’s.
Catch up contributions are a chance for people aged 50 to 59 to “catch up” on their 401(k) savings. The IRS recently announced an increase in the catch up contribution limit to $7,500 for a maximum of $31,000 annually.
Now, people between the ages of 60 and 63 can contribute even more to their retirement plans as a result of the Secure 2.0 Act of 2022. They can now contribute an additional $11,250 in 2025 to reach a maximum annual contribution of $34,750.
If you don’t have access to a 401(k) or want to add another retirement account, savers can contribute up to $7,000 to an individual retirement account this year. This includes an additional $1,000 for people 50 years and older. This is the same limit as 2024.
Here are some tips to make the most of your retirement:
Start early
It is important to start saving as much as you can as early as possible. This will allow your savings to get the most out of compound interest.
It is ideal to contribute the maximum ($23,500) to your 401(k) with an annual return rate of 8% of your contribution. By doing so, your balance could potentially grow to become $6 million in 40 years.
Even if you can put $10,000 a year for 40 years, you will have around $2.6 million, assuming the 8% return rate applies.
Take advantage of an employer match program
Many experts consider this to be “free money.”
For example, if your employer offers a 100% match on up to 4% of your salary and you put 4% of your paycheck into your 401(k) and your company matches the contribution, you earn a 100% return on your investment.
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