Are you looking to focus on retirement in 2025? According to financial experts, early January is the ideal time to increase your 401(k) plan contributions. A Bankrate survey revealed that more than half of American workers believe they are falling behind on retirement savings. However, in 2025, there will be a higher contribution limit for 401(k) plans, along with a special catch-up option for older investors.
Starting in 2025, the contribution limit for your 401(k) plan will be $23,500, up from $23,000 in 2024. Investors aged 50 and above can make catch-up contributions of $7,500 on top of the $23,500 limit. It is recommended to make these changes early in the year as it takes a couple of paychecks for the new deferral amounts to take effect.
Catherine Valega, a certified financial planner, suggests being aggressive with investments, especially for those with decades until retirement. In 2025, investors aged 60 to 63 have a special catch-up limit where they can save $11,250 for catch-up contributions, bringing their total deferral limit to $34,750 for the year.
While many investors aim to max out their 401(k) deferrals, it can be challenging with other short-term financial goals like paying off debt or buying a home. Experts recommend having a sufficient emergency fund outside of retirement savings, typically three to six months’ worth of expenses.
It’s important to defer as much as you feel comfortable without tapping into your retirement funds prematurely to avoid penalties and taxes for early withdrawals. Maxing out your 401(k) plan is a smart move, but it’s essential to consider your overall financial situation before making significant changes.