Make the most of your 401(k) funds before you retire

[UNITED STATES] If you're approaching retirement and aiming to maximize your 401(k) contributions, it's crucial to understand the latest IRS limits for 2025. While many are aware of the standard contribution limits, recent changes under the SECURE 2.0 Act offer enhanced opportunities for older workers to boost their retirement savings.

2025 Contribution Limits: What You Need to Know

The IRS has announced the following 401(k) contribution limits for 2025:

Standard Contribution Limit: $23,500 (up from $23,000 in 2024)

Catch-Up Contribution (Age 50+): $7,500

Super Catch-Up Contribution (Ages 60–63): $11,250

This means individuals aged 60 to 63 can contribute up to $34,750 to their 401(k) plans in 2025, significantly increasing their retirement savings potential.

These rising limits reflect broader trends in cost-of-living adjustments and inflation, which the IRS monitors annually to ensure retirement savings vehicles keep pace with economic conditions. As Americans are living longer and facing rising healthcare and living expenses in retirement, policymakers have pushed for more flexible savings mechanisms. The super catch-up provision is one example of this shift, aiming to empower pre-retirees to close potential savings gaps during their final working years.

Understanding the "Super Catch-Up" Provision

Introduced under the SECURE 2.0 Act, the "super catch-up" provision allows workers aged 60 to 63 to contribute an additional $11,250 to their 401(k) plans. This adjustment aims to help older workers who may not have saved sufficiently in their earlier years to catch up on their retirement savings.

Additionally, the SECURE 2.0 Act includes a requirement that catch-up contributions for high-income earners—those making over $145,000—must be made on a Roth basis, meaning contributions are made with after-tax dollars. This change, which begins in 2026, could influence how individuals structure their retirement contributions, especially if they prefer the tax-deferred advantages of traditional 401(k)s. Financial advisors recommend reviewing income projections and tax planning strategies in advance to adjust accordingly.

Employer Contributions: An Added Bonus

In addition to individual contributions, employers can also contribute to your 401(k) plan. For 2025, the combined limit for employee and employer contributions is $70,000. This means that with employer contributions, individuals aged 60 to 63 can potentially reach a total of $104,750 in 401(k) savings for the year.

Some employers are also beginning to adopt optional SECURE 2.0 provisions such as matching contributions based on student loan payments. This initiative, which becomes effective in 2024, allows workers who are repaying student loans to still benefit from employer 401(k) contributions—even if they aren't personally contributing to their retirement plan. It’s part of a broader strategy to address the financial realities of modern employees and support long-term retirement readiness.

Who's Taking Advantage?

Despite the increased contribution limits, data from Vanguard's 2024 "How America Saves" report indicates that only 14% of employees maxed out their 401(k) contributions in 2023. This suggests that many workers, especially those nearing retirement, may not be fully utilizing the available opportunities to bolster their retirement savings.

Barriers such as debt, healthcare expenses, and insufficient financial literacy continue to hinder participation in retirement plans. Surveys show that even among eligible employees, a significant number do not contribute enough to receive the full employer match—effectively leaving free money on the table. Expanding access to workplace financial education programs and personalized retirement planning tools may help more individuals take full advantage of these expanded savings opportunities.

Should You Max Out Your 401(k)?

While contributing the maximum amount to your 401(k) can be beneficial, it's essential to consider your overall financial situation. Factors such as current expenses, other investment opportunities, and retirement goals should influence your decision. Consulting with a financial advisor can help tailor a strategy that aligns with your personal circumstances.

The enhanced contribution limits for 2025 present a valuable opportunity for older workers to accelerate their retirement savings. By understanding and utilizing these provisions, individuals can work towards achieving a more secure financial future in retirement.