Hey everyone! Are you maxing out your 401k contribution every year? This is a great way to save for retirement. Retirement might look like it’s a long way off, but it’ll arrive before you know it. Seriously, maxing out your 401k is the easiest way to become a millionaire. It’s automatic, and you won’t even miss it after a few months.
The maximum 401k contribution limit usually increases every few years, but 2025 is special. Congress added a new category for workers ages 60 to 63. Here is the breakdown of the limits for 2025.
- Under age 50: $23,500
- Ages 50-59: $ $23,500 (standard deferral) + $7,500 (catch-up) = $31,000
- Ages 60-63: $23,500 (standard deferral) + $11,250 (enhanced catch-up) = $34,750
- Age 64 and over: $23,500 (standard deferral) + $7,500 (catch-up) = $31,000
Wow, that’s a lot of money to put away. Your contribution to a traditional 401k will not be taxed. This is a huge benefit. Who doesn’t want to pay less tax? This is great news for older workers. However, there is another big change coming in 2026.
Roth 401k
Many employers now offer the Roth 401k option for their employees. If the option is offered, you can contribute to the traditional 401k (pre-tax) and/or the Roth 401k (post tax). If you choose the Roth 401k, you will pay tax now but you won’t be taxed during withdrawal. Both are great options. You should have both traditional and Roth retirement accounts to increase your tax diversity. Having both will help you pay less tax in the long run.
Catch-up contribution changes for 2026
There will be another big change next year if your income is more than $145,000 in 2025. All the catch-up contribution has to be in the Roth 401k. I guess the government prefers to tax now rather than later. I don’t think this is a huge deal. It’s better to increase your tax diversity anyway. Most older workers have much more saved in their traditional retirement account than the Roth. This is because we couldn’t contribute much to our Roth account in the old days.
My retirement fund has about 75% traditional and 25% Roth. I think this is a pretty good mix.
Here is the big change next year.
- Catch-up contribution must be in Roth 401k if your income was more than $145,000 in the previous year
However, there is a big gotcha. Employers are not required to offer the Roth 401k option. If your employer doesn’t offer the Roth 401k option, then you won’t be able to make catch-up contribution. This applies only if your income was more than $145,000. Check your 401k plan now if you’re in this category.
Retirement savings
My best advice for young workers is to max out your 401k contribution as soon as you can. Start with contributing 10% of your income and increase it every year. Once you start maxing out your 401k contributions every year, your retirement savings will accumulate quickly and compound interest will work for you.
Are you maxing out your 401k contribution? Both traditional 401k and Roth 401k are great options. Keep investing!
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