How to maximize your 401(k) plan in 2025 with higher limits, bigger catch-up contributions

If you’re eager to save more for retirement, you could be overlooking ways to maximize your 401(k) plan, including key changes for 2025.

Some 40% of Americans are behind on retirement planning and savings, according to a CNBC poll conducted by SurveyMonkey, which polled 6,657 U.S. adults in August.

But before making 401(k) plan changes, experts say you should always review your financial situation, including your income, immediate spending needs and goals. 

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“401(k) investing focuses on long-term retirement goals,” said certified financial planner Salim Boutagy, partner at Moneco Advisors in Fairfield, Connecticut. But it should work alongside other savings that cover your midterm goals, emergencies and immediate spending needs.  

If you’re ready to boost retirement savings, here are some key things to know about your 401(k) for 2025.

Starting in 2025, employees can defer $23,500 into 401(k) plans, up from $23,000 in 2024. The catch-up contribution limit remains at $7,500 for investors age 50 and older.    

“This higher ceiling isn’t just a win for high earners,” said CFP Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida. “It’s a prompt for everyone to consider boosting their savings rate,” Ulin added.

Even 1% yearly increases “can make a substantial difference” thanks to compound growth over time, he said.

The retirement plan savings rate for the third quarter of 2024, including employee deferrals and company contributions, was an estimated 14.1% as of Sept. 30, according to Fidelity Investments, based on an analysis of 26,000 corporate plans.

On top of higher 401(k) deferral limits, there is also a new “super max catch-up” opportunity for some older investors in 2025, said CFP Dinon Hughes, a greater Boston area-based financial consultant with Nvest Financial.

If you are between the ages of 60 and 63 in 2025, the catch-up contribution limit increases to $11,250, which brings the total deferral cap to $34,750 for this group.

Only about 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly five million participants.

However, there is “one major caveat,” Hughes said.

Your 401(k) must allow the increased catch-up contributions. Otherwise, payroll could flag the added funds as excess 401(k) deferrals, he said. There can be tax consequences if excess deferrals are not removed.

“Check with your employer now to avoid a much bigger headache at the end of 2025,” Hughes said.

Generally, experts recommend investing sooner to boost compound growth over time. But you could lose part of your employer’s matching contribution by maxing out your 401(k) early — unless your plan has a special feature.  

Typically, your employer’s 401(k) match uses a formula to deposit extra money into your account. You must defer a certain percentage of income from each paycheck to receive your full employer match for the year. 

Some plans offer a “true-up,” or deposit of the remaining employer match, for employees who max out their 401(k) plan before year-end. 

“If your plan offers this feature, it’s a green light to contribute aggressively in January, maximizing market exposure from day one,” Ulin said.

Some 67.4% of plans made true-up matches when matches were not made annually in 2023, according to the Plan Sponsor Council of America’s latest yearly survey. The feature is most common in larger plans.