Dreaming of Retirement? Consider Maxing Out Your 401(k) in 2025

This week, with the dawn of tax season, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the contribution and catch-up limits for workplace retirement plans, including the less-common opportunity to make larger after-tax contributions:

About 70% of U.S. private-sector workers have the option to contribute to a retirement plan such as a 401(k), 403(b), or 457(b) plan provided by an employer. Unfortunately, many of them don’t take full advantage of this tax-friendly opportunity to save for the future.

The SECURE Act and SECURE 2.0 Act (federal legislation passed in 2019 and 2022, respectively) sought to improve Americans’ retirement security by expanding access to workplace retirement accounts and encouraging workers to save more. As a result, some older workers will be allowed to make bigger contributions to their retirement accounts in 2025.

That’s good news if you are one of the many Americans who have experienced bouts of unemployment, took time out of the workforce for caregiving, helped pay for pricey college educations for your children (or yourself), or faced other financial challenges that prevented you from saving consistently. You may have some catching up to do. And regardless of your age, the responsibility for saving enough and investing wisely for retirement is largely in your hands.

Starting Out Strong

The funds invested in tax-deferred retirement accounts accumulate on a tax-deferred basis, which means you don’t have to pay any required taxes until you withdraw the money. Instead, all returns are reinvested so they can continue compounding through the years. This is the main reason why young workers can really benefit from saving as much as they can, as soon as they can.

Many companies will match part of employee 401(k) contributions, so it’s a good idea to save at least enough to receive full company matches and any available profit sharing (e.g. 5% to 6% of salary).

But to set yourself up for a comfortable retirement, you might elect to automatically increase your contribution rate by 1% each year (if that option is available) until…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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