Did you know that about 70% of U.S. private-sector workers can contribute to employer-sponsored retirement plans like 401(k), 403(b), or 457(b) accounts? Unfortunately, many miss out on the opportunity to make the most of these tax-advantaged savings vehicles.
Recent legislative changes, such as the SECURE Act and SECURE 2.0 Act, aim to bolster Americans' retirement readiness. With enhanced contribution limits starting in 2025, older workers, in particular, can take strides in building their retirement nest eggs. Here’s how you can take advantage of these opportunities and secure your financial future.
Why Start Saving For Retirement Early?
The power of compounding makes early contributions to tax-deferred retirement accounts a game-changer. With earnings reinvested, your savings grow exponentially over time without immediate tax implications. For young workers, this means prioritizing savings now can lead to a more comfortable retirement later.
If your employer offers a 401(k) match, aim to contribute at least enough to capture the full match—this is essentially free money for your retirement. Additionally, consider setting up automatic annual contribution increases, such as a 1% bump each year, until you reach an optimal savings rate of 10% to 15% of your income.
New Contribution Limits for 2025
In 2025, employees can contribute up to $23,500 to 401(k), 403(b), or 457(b) plans. If you’re age 50 or older, you can make an additional $7,500 catch-up contribution, bringing the total to $31,000. Workers aged 60 to 63 can take advantage of a new "super catch-up" provision, allowing for an extra $11,250 contribution, for a grand total of $34,750.
Don’t forget to explore whether your employer’s plan permits special after-tax contributions. If eligible, you can increase your retirement savings. For instance, if you’re age 60 and your employer contributes $15,000 to your plan, you could add $31,500 in after-tax contributions, bringing your total retirement savings to an impressive $81,250 for the year.
SIMPLE retirement plans, commonly offered by smaller companies, have lower limits: $16,500 for 2025, plus catch-up contributions of $3,500 for those 50 and older or $5,250 for those 60 to 63. Contribution limits are adjusted annually for inflation, so it’s important to stay updated.
Choosing Between Traditional and Roth Accounts
When deciding whether to make traditional or Roth contributions, consider your current tax situation and future financial goals.
- Traditional Contributions: These reduce your taxable income today, but withdrawals in retirement are taxed as ordinary income. Required minimum distributions (RMDs) from traditional accounts begin at age 73 or 75, depending on your birth year.
- Roth Contributions: While Roth contributions are made with after-tax dollars, qualified withdrawals are entirely tax-free. Additionally, Roth accounts aren’t subject to RMDs during your lifetime, offering greater flexibility and potential estate planning benefits.
Splitting contributions between traditional and Roth accounts can provide tax diversification and more options in retirement. Starting in 2026, high earners (over $145,000 in the previous year) must allocate all catch-up contributions to Roth accounts, so planning ahead is crucial.
Take Charge of Your Retirement
Saving consistently and maximizing your contributions is the key to a secure retirement. Whether you’re just starting your career or catching up later in life, the enhanced limits and opportunities in 2025 can help you build a robust financial future.
Let us know if you want to take full advantage of your benefits. By acting today, you’ll be well on your way to achieving the retirement of your dreams.
