401k Limits 2025: What You Need to Know About SECURE 2.0, Retirement Plan Changes Next Year

WASHINGTON — If you’re approaching retirement, you’ll soon be able to stash even more money into your savings—if you can afford it.

The maximum amount people can contribute to their 401(k) or similar plans in 2025 will increase to $23,500, up from $23,000 in 2024, the IRS announced.

The federal government already allows people age 50 and older to make additional contributions so they can save more as they approach retirement age. This is known as “catch-up” contribution.

In 2025, the standard surcharge will remain the same at a maximum of $7,500, according to the IRS.

But from next year, workers aged 60 to 63 will be able to make “super” extra contributions of up to $11,250 a year, amounting to an extra $3,750.

This means they could potentially contribute up to $34,750 annually to a workplace retirement account.

The substantially higher catch-up contributions are part of SECURE 2.0, which President Joe Biden signed into law in 2022 as part of a $1.7 trillion spending package.

“While anything that encourages more investment is generally a good thing, I fear this rule change probably won’t have much of an impact,” Bankrate senior industry analyst Ted Rossman told ABC News. “There must be a very small number of people aged 60 to 63 who have maxed out their accounts and can now go even higher.”

In 2023, only 14% of retirement plan participants exceeded their 401(k) limits, according to Vanguard Research.

Even those who have always exceeded their retirement savings may need to reallocate funds as they age and begin to face additional expenses, such as sending children to college or caring for aging parents.

Outside of 401(k) plans and similar employee-sponsored plans, the annual contribution limit for an individual retirement account will remain unchanged next year at $7,000, while the catch-up contribution for people 50 and older will remain $1,000.

These limits apply to both traditional IRAs, which can offer tax deductions based on income, and Roth IRAs, which offer no tax deductions but offer tax-free growth and withdrawals in retirement.

An aging population, combined with fewer companies offering pensions, means that a smaller proportion of the population overall is ready to retire.

The typical household headed by someone ages 55 to 64 has just $10,000 saved in a retirement account, according to an analysis of federal data by the Economic Policy Institute and the Schwartz Center for Economic Policy Analysis.

“I don’t want to discourage investing at any age, but there’s a reason Einstein called compound interest the eighth wonder of the world,” Rossman said. “Investing is more effective when you are young.”

However, catch-up contributions can be a valuable way to boost your retirement fund and take advantage of tax benefits.

Rossman said it’s also important to contribute regularly to your 401(k) plan and gradually increase your contributions. He suggested putting calendar reminders to increase your 401(k) contribution each year.

“The idea is that you’ll be less likely to miss out on extra money if you do it gradually or at the same time as you raise your salary,” Rossman said.

For example, he said, if you currently contribute 5% of your salary, could you increase that amount to 6% or 7% next year?

“Increasing your percentage gradually makes it more likely that you’ll stick with the approach,” Rossman added, “and you won’t degrade your standard of living.”

The video in the player above is from a previous report.