If you’re gearing up to prioritize retirement savings in 2025, financial advisors suggest that early January might be the ideal time to ramp up your 401(k) contributions.
According to a Bankrate survey conducted in August with 2,445 U.S. adults, more than half of American workers feel they’re lagging behind in their retirement savings. Fortunately, starting in 2025, there’s an increased contribution limit for your 401(k), along with a special catch-up provision for older investors that could help bolster your retirement funds.
For the year 2025, you can contribute up to $23,500 into your 401(k), up from the $23,000 limit in 2024. If you’re 50 or older, you can make additional catch-up contributions of $7,500 on top of the $23,500 maximum.
Catherine Valega, a certified financial planner in the Boston area and the founder of Green Bee Advisory, points out that it generally takes a couple of pay periods for changes in 401(k) deferrals to take effect. By increasing your contributions earlier in the year, the adjusted percentage is spread across more pay periods, making it easier to max out your deferrals.
Valega encourages an aggressive investment strategy, especially for those who have several decades before retirement. She advises clients to aim for maximizing their 401(k) plans if they’re able.
In 2025, Secure 2.0 introduces a special catch-up limit for those aged 60 to 63. Instead of the standard $7,500, this group can contribute $11,250 in catch-up contributions, upping their total deferral limit to $34,750 for the year.
While the goal for many is to max out their 401(k) contributions, it can be challenging due to competing short-term goals like settling debts or purchasing a home. A Vanguard report from 2024, analyzing data from 1,500 qualified plans and almost five million participants, noted that only about 14% of employees managed to max out their 401(k) in 2023. These contributors were usually older, earned higher incomes, and had longer tenures with their employers.
George Gagliardi, CFP and founder of Coromandel Wealth Strategies in Lexington, Massachusetts, advises deferring as much as you comfortably can without needing to access those funds before retirement. Withdrawing early can result in a 10% penalty and taxes, except in certain circumstances.
Additionally, Gagliardi recommends maintaining a “sufficient emergency fund” outside your retirement savings. Generally, experts suggest having a reserve covering three to six months of expenses, tailored to your family’s specific situation.
