Supersize your Savings: Contribution Limits Jump in 2025
January isn’t just a time for post-holiday blues and ill-fated New Year’s resolutions. It’s also the start of new contribution limits for your retirement and investment accounts. So, skip the gym for a day —we promise, it’s super crowded—and grab your pay stubs and account statements.
Elective deferrals, or dollars that travel directly from paychecks to 401K, 403(b) and 457 accounts, will top out at $23,500 in 2025, a small increase from the prior year. That means that many employees, education workers, and governmental staffers can add a bit more to their retirement savings by taking a larger payroll deduction. Typically, you can adjust these contributions by working with your human resources person.
Catch-Up Contributions Soar
The total contribution limit for those over 50 to 59 skyrocketed to $31,000. That includes so-called “catch-up contributions” designed to help older adults boost their savings as they approach retirement.
Investors aged 60-63, in particular, stand to benefit. Thanks to tweaks to the SECURE Act 2.0, which was passed in 2022, 401(K) contribution limits will hit $34,750 for those in this three-year span.
These same limits also apply to 403(b) and 457 accounts, with an additional $3,000 allowed for 403(b) participants with 15 or more years of service.
No Change for IRAs
Roth and traditional IRA contributions will stay the same: $7,000 for eligible people, with a $1,000 catchup contribution for those 50 and older. However, if your income has increased, your contribution may have decreased, or you may no longer be eligible to contribute.
For Roth IRAs, single people making $150,000 or more or married couples making $236,000 or more combined should check with their advisor. At these income levels, the amount you can contribute begins to decrease and is eventually phased out. Income limits for traditional IRAs start at $79,000 for individuals or $236,000 for those couples.
So, keep celebrating raises, promotions, and salary bumps. In most cases, you will still be able to contribute. What could change is where you make that contribution.
Time to reevaluate your monthly budget
So, how do you know if it’s time to boost your contributions? First, be sure you have an emergency fund of at least three to six months of expenses. Typically, you will also want to have paid off any debt with an interest rate of 8% or higher. But talk to your advisor if you need more guidance.
Once you know that increasing your contributions is the next step in your financial plan, look at your monthly budget. Is there excess left over each month? Are there areas where you could cut your spending without sacrificing too much quality of life? If so, make a note to check in at your next account review. It may be a good time to contribute more.
If you have any questions or want to check in on your portfolio, you can schedule a time to connect with your Advisor.
