The youngest of the baby boomers and some older Generation Xers might have some confusion about how much money they can put away in their 401(k) plans in the year 2025. Could they really save up to $34,750 for retirement next year in a 401(k) plan? Yeah, that’s the mind-blowing max that was just posted. Of course, they may need to avoid certain trips to the supermarket, put aside plans to go out for a walk and avoid sports betting or compulsive online shopping in order to achieve this.
Why are we suddenly talking about such high figures? It is because from next year a new hyper-concentrated recovery limit will begin to apply, thanks to a little-known change made in the SECURE 2.0 law. Major revisions to retirement savings standards were included in SECURE 2.0, which President Joe Biden signed into law in late 2022 as part of a $1.7 trillion overall spending package.
New strategy to increase retirement savings
Those who are close to retirement might be happy to know that they have a way to put even more money in their savings. A substantially higher “catch-up” contribution for 401(k) plans applies to those who saved and are now, 60, 61, 62, and 63 participating in these plans at work beginning in 2025. For example, if someone is 59 in March but turns 60 in September 2025, according to the IRS, they could contribute up to a maximum of $34,750 into a 401(k) plan in 2025.
By 2025, the highest catch-up contribution limit that applies to this age group is $11,250. That’s $3,750, plus the regular recovery limit is $7,500, which starts to apply in the year a person turns 50. Catch-up contributions for those 50 and older have long been a way for some who can save more to get an extra boost in their later working years. We are talking about people who participate in most government 401(k), 403(b), 457 plans and the federal government Retirement Savings Plan.
Everything you need to know about 401(k) savings limits
At the beginning of November, the Internal Revenue Service (IRS) implemented new updated limits for beneficiaries for retirement in 2025. According to the IRS announcement, individuals can contribute up to $23,500 to their 401(k) plans by 2025, which is $500 more than the 2024 limit. This increase applies to both young people and older workers.
Catch-up contributions allow you to save beyond that initial limit, if you qualify. There are maximum catch-up contributions of $7,500 for one group of older workers and $11,250 for another. Thus, the total allowable contribution in a 401(k) plan is $34,750 for those aged 60 to 63 in 2025, and $31,000 for employees aged 50 to 59 or over 64. This new, permanent rule may be a little confusing for some.
