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When I was working, I saved the maximum to my 401(k) account. So, I always kept up with the plan’s savings limits. If you haven’t heard, there are higher savings limits for 401(k) plans in 2025, plus a new “super catch-up” category. And it’s still early enough in the year for salaried workers to take advantage of them.
Thanks to an inflation adjustment, the maximum regular contribution to a 401(k) plan has increased by $500 to $23,500 in 2025. Workers ages 50 to 59 or 64+ can save $7,500 more in “catch-up” contributions in 2025, or $31,000 total.
New in 2025 is the super catch-up category, allowing workers aged 60 to 63 to mount a savings charge before retiring. They can save $11,250 in catch-up contributions—or $34,750 total—to their 401(k) account this year.
Which brings me to the fly in the ointment. With savings limits this high, most workers don’t make enough to ring the top bell. In 2023, only 14% of workers contributed the maximum to their retirement plan, according to Vanguard’s How America Saves 2024, which analyzes the behaviors of some 5 million plan participants.
Here’s my low-stress saving suggestion. Don’t try to leap over the high bar in one go. Instead, if you’re working, raise your savings by 1% of your pay. I didn’t feel much difference in my take-home pay when I did. Then do it again next year, and so on. Maybe you‘ll hit the savings limit, or maybe you won’t. But you should be able to retire someday.
For many years, I got something like annual COLA raises and increased my retirement contributions accordingly. Implementing this did of course require some frugality.
Important to note that the “super” catch contributions for workers age 60 to 63 has to be adopted by your employer. If it’s not currently available by your employer, interested employees should lobby their HR department to get the feature added.
With regards to this feature likely not being something that most workers have the ability to take advantage of, one of the dirty little secrets of 401(k) plans is that they tend to be most advantageous to mostly highly compensated employees, who have the ability to take advantage of the highest savings limits. In most corporate 401(k) plans, 80% of plan assets are held by approximately 20% of company employees, usually the most highly compensated employees of the company.
As far as I know, as long as the ratios of employee contributions to compensation are relatively equal (something like not more than a 2x difference between highly-comped employees and non-highly-comped employees, for example) then it’s considered fair by the rules. But I completely agree 401k plans are a better deal the more money you make, and significantly worse deal than a pension if you’re middle or lower income. It wasn’t the most equitable solution, but really the point of the 401k was saving money for companies, wasn’t it?
My understanding of a key point in the law change is the employer must amend their 401(k) or other qualified plan to allow the super catch-up to be elected by the employee and doing so is optional for the plan sponsor. I have wondered if any employer other than large employers will adopt plan amendments to allow such catch up provisions for what appears to be a very limited group of employees.
If you want to nerd out here is a recent link to the provisions as published in the federal register.
https://www.federalregister.gov/documents/2025/01/13/2025-00350/catch-up-contributions
Many plans have a feature that allows you to do that automatically, so you don’t even need to remember. It will auto raise every year based on a percentage you choose.
Good idea. Also, raise your contribution with each raise or if you are lucky to receive a bonus, raise the percentage to consume the bonus and get that amount in the 401k, use the bonus for living expenses and then drop the % back to normal.
My question is why are 401k and IRA limits different? Where is the logic in that?
Having taken a quick peak at this article from Morningstar, the gap has always existed since the creation of the 401k, and the fear is that if the contribution limits are equalized it will disincentivize employers from offering retirement plans through work, since a comparable alternative now exists that the employer doesn’t have to put any effort or money into. Basically it would reduce the value of a 401k plan to the point where employers would stop caring about offering a good one, hurting employees with good plans currently, and reducing the likelihood of more people getting access to such plans. Idk how reasonable that is as a basis, but that’s the gist of the article.
Honestly, I don’t see the logic. The 401k most often receives an employer match and employers use it as a recruiting and retention tool. I can’t see how a higher limit for an IRAs would affect employer plans at all and it seems unfair to workers without a 401k.
Oh I agree, I think that fear is more perception than reality. I could see it discouraging small employers maybe, but those employers who already have good plans in place probably wouldn’t change anything. But who knows? And as much as I think there should be an alternative to workplace plans so that everyone has equal access to a good retirement account, realistically how much would that improve retirement security for those who currently don’t have a plan with their employer? How many such workers would even contribute, especially if there were no match?
This is the advice I give my coworkers if the question arises. Start with getting the maximum match, and then add half of your raise (or all) to that. Once the retirement money starts adding up they become more self-motivated. I, on the other hand, am an all of nothing kind of guy, so I have FIRE approach to my savings.
Between my employer’s contribution and my own contribution I save 22% in my 401(k), and my wife 18% in hers, but I also max out my HSA account ($9550 for 2025), which helps.
Our overall savings rate is 35% of gross income, and that’s while paying $3400 a month for our daughter’s college. We’re going to feel rich once she’s done in 2027!
I did 1% per year of increase for many years. But at some point I decided to bite the bullet and jump all the way to the maxing out. I agree that over time I didn’t feel the pain of the increase. Often the increase in health insurance payments felt more painful.
The time that I felt it the most was in 2020. I planned to retire in the June/July timeframe. I adjusted my 401(k) withholding to achieve the max contribution by then – so I was working with a 2x deduction.