As the calendar year beckons a close, it becomes the perfect time to review one’s retirement savings strategy, especially with recent updates from the IRS. It has provided that the contribution limit for 401(k) plans is increased for 2025. From next year, individuals can save up to $23,500 in 401(k) plans, which is a $500 increase from the previous year.
According to Harry Drozdowski, an adviser with Wealth Planning at Wells Fargo, this is “an important update:” For 2025, you can contribute up to $23,500 from personal funds. For anyone over 50, that individual is eligible to have another additional $7,500 for catch-up contributions, meaning you could perhaps have a total maximum contribution of $31,000 if you qualify.
These limits are just for the contributions of the person and do not include what the employer might put in on their behalf. Many companies have matched their 401(k) contributions. That can also result in a major boost to an employee’s savings.
Some get matched 50 cents for each dollar saved by the employee, and some get dollar-for-dollar matching. These are free dollars that help employees save more in their retirement accounts. Not using these benefits means leaving money on the table that could grow over time with compounding interest.
Maximizing savings and planning for a secure future
The traditional 401(k) plans provide the benefit of tax-deferred growth and contributions before taxes. This means that the amount put in the plan will reduce taxable income during the year of contribution, and the amount grows tax-free till retirement. In retirement, taxes will be incurred when drawing the money. This was stressed again by Drozdowski, who said, “The federal government encourages retirement savings by allowing tax-deferred growth, helping individuals maximize their nest eggs over time.”
Now, even if many employees earn good money, they tend to underestimate the amount they would require to lead a comfortable retirement. Vanguard’s research noted that retirees typically spend 75% to 85% of pre-retirement income annually. Therefore, an advanced plan is a requirement that will always fetch savings in the years of working.
The financial experts recommend putting away about 12% to 15% of your annual salary for retirement savings. For example, a $50,000 annual salary should give a retirement savings target of between $6,000 and $7,500 each year. By making annual contributions to tax-advantaged accounts such as a 401(k) or Roth IRA while also maximizing employer-matching programs, you can set yourself up along a good path toward realizing your financial visions.
It is now high time to check your retirement contributions and make whatever adjustments are needed to maximize your investments. Revisions to the IRS contribution limits allow for increased contributions to your future savings. By paying attention to higher limits, employer contributions, and tax advantages, your future will be better prepared for a financially secure and comfortable retirement.
