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If your employer offers a 401(k), you’ll be able to save more money for retirement in the new year. The IRS recently announced the new limits for 401(k)s and other tax-advantaged retirement accounts.
The 2025 401(k) contribution limit is $23,500, a $500 increase from 2024’s limit. If you’re 50 or older, you can stash an additional $7,500 in your 401(k) in both 2024 and 2025. And if you’re between the ages of 60 and 63, you can make an even higher extra contribution of $11,250 under new Secure Act 2.0 rules that take effect in 2025.
Read on to learn more about the 401(k) contribution limits for 2025, as well as some new retirement savings rules that should be on your radar.
The IRS adjusts the limits for how much you can save in a tax-advantaged retirement account each year for inflation. It typically does so in $500 increments. Unlike 401(k) limits, individual retirement account (IRA) limits won’t change in 2025.
There are two main types of 401(k)s: traditional 401(k)s, where you contribute pre-tax money and pay taxes on withdrawals, and Roth 401(k)s, where you’ve already paid taxes on the contributions and you get tax-free withdrawals in retirement. The contribution limits are the same for both types of 401(k)s.
These limits also apply to several other types of retirement accounts, including:
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403(b) plans, which are offered by public schools and some 503(c)(3) tax-exempt organizations
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Most 457 plans, which are available to some state and local government employees, as well as employees of some tax-exempt non-governmental entities
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The Thrift Savings Plan for federal government employees and uniformed service members.
Many companies match a portion of their employees’ contributions to 401(k)s and other retirement accounts. If your employer provides a match, their contribution won’t count toward the amount you’re allowed to contribute.
However, there are limits on combined employer and employee contributions. In 2025, you and your employer’s contributions to your 401(k) can’t be more than $70,000, up from $69,000 in 2024. The $7,500 catch-up contribution that you’re allowed to make if you’re at least 50 in both 2024 and 2025 doesn’t count toward these limits, nor does the $11,250 catch-up contribution you can make in 2025 if you’re between the ages of 60 to 63.
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There are no 401(k) income limits; you can contribute to a 401(k) no matter how high your income. But the IRS conducts what’s called non-discrimination tests each year to ensure that a retirement plan doesn’t disproportionately benefit highly compensated employees. The IRS will consider you a highly compensated employee if:
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You own more than 5% of the business at any time during the year or the previous year, regardless of how much you earned, OR
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You earned more than $155,000 in the previous year for 2024 or $160,000 in the previous year for 2025, and if your employer chooses to make what’s known as a top-paid election, you rank in the top 20% of employees for compensation.
If you’re considered a highly compensated employee, you can still contribute to your 401(k) up to the limits. But if your company’s plan fails discrimination testing for a year, it may need to return some of your contributions as a corrective measure.
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You have until the end of the calendar year to make 401(k) contributions, so the deadline for 2024 contributions is Dec. 31, 2024. Any contributions you make after that will count toward the 2025 contribution limits.
Yes. You can contribute to both a 401(k) and an IRA as long as you’re eligible for each account and stick to the contribution limits. However, if you or your spouse has a 401(k) or any other workplace retirement account, you may be ineligible to deduct contributions to a traditional IRA, or you may only be allowed to deduct a partial amount. Also, keep in mind that income limits apply to Roth IRAs.
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Higher catch-up contributions for people ages 60 to 63 aren’t the only 401(k) change coming in the new year. Starting in 2025, employers that established new 401(k) or 403(b) plans on or after Dec. 29, 2022, will be required to automatically enroll workers at a default contribution rate of 3% to 10%.
They’ll then be required to automatically increase the default contribution by 1 percentage point until the employee is contributing 10% to 15% of their salary to a retirement plan. However, automatic escalation isn’t required if employers choose the maximum beginning default contribution rate of 10%. Employees who don’t want to participate can opt out of 401(k) enrollment.
The new rule is part of the Secure Act 2.0 that President Joe Biden signed into law in late 2022. Businesses that have 10 or fewer employees or that have been in operation for less than three years are exempt from the automatic enrollment requirement.
There are a few new 401(k) rules that took effect in 2024, most of which were part of the Secure Act 2.0. Here are some recent changes that could affect your retirement planning:
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Roth 401(k)s are no longer subject to RMDs. Required minimum distributions (RMDs) are mandatory distributions you have to take the year you turn 73 (previously 72) from certain retirement accounts. But as of 2024, Roth 401(k)s no longer have RMDs. Traditional 401(k)s are still subject to RMDs.
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Student loan payments can qualify for a 401(k) match. You may find it difficult to save for retirement if you’re bogged down by student loans. That can mean missing out on free money from your employer’s 401(k) match. Under new rules that took effect in 2024, though, your employer can treat qualifying student loan payments as 401(k) contributions for the purpose of determining your match. For example, suppose your employer matches 50% of your 401(k) contributions and you pay $2,000 toward your student loan for the year. Your employer now has the option to contribute $1,000 (50% of $2,000) to your 401(k) based on your student loan payment.
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It could be easier to make a one-time emergency withdrawal from a retirement account. You may now be able to take an emergency hardship withdrawal of up to $1,000 from your 401(k) or IRA without paying the 10% early withdrawal penalty that often applies if you tap retirement funds before age 59 ½. You’re only allowed one emergency withdrawal per calendar year. If you don’t repay the distribution within three calendar years, you won’t be able to make additional penalty-free hardship distributions.
Some changes, like student loan matches and emergency hardship withdrawals, are optional for employers to implement. So even though the rules changed in 2024, your 401(k) plan might not yet have these features.
Yes, 401(k) contribution limits are increasing by $500 in 2025, to a total of $23,500. The 2024 401(k) contribution limit was $23,000. Catch-up contributions for people 50 and older will remain at $7,500 for both years, but starting in 2025, people ages 60 to 63 can make a catch-up contribution that’s 50% higher than the regular catch-up contribution limit. That means workers ages 60 to 63 can contribute up to $34,750 in 2025.
A good goal to aim for is to save 15% of your pre-tax income in a tax-advantaged retirement account, like a 401(k), 403(b), or IRA. Employer contributions count toward that 15% target. However, if you’re getting a late start or you want to retire early, you may need to save more since your money has less time to grow.
Maxing out your 401(k) is a smart move when you have a relatively high salary, but it’s not necessary or realistic for many people. Aim to contribute at least enough to get your employer’s full match, then use your extra money to pay off high-interest debt, like credit cards, and build at least a three- to six-month emergency fund. After that, aim to invest more for retirement by funding an IRA, making unmatched 401(k) contributions, or a combination of both.
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