Retirement savings have been a persistent challenge for many Americans, with nearly 40% of workers feeling behind in their financial planning. However, significant updates to 401(k) plans starting in 2025 could provide older workers with a much-needed boost to secure their retirement future.
Higher Contribution Limits in 2025
The IRS has announced that the employee contribution limit for 401(k) plans will rise to $23,500 in 2025, up from $23,000 in 2024. While the catch-up contribution for workers aged 50 and older will remain at $7,500, there’s a game-changing enhancement for those aged 60 to 63.
Under the Secure 2.0 Act, individuals in this age group can make additional catch-up contributions of up to $11,250 starting in 2025. Combined with the standard deferral limit, these workers can contribute up to $34,750 annually to their 401(k) plans—a 14% increase compared to 2024.
A Lifeline for Those Behind on Savings
This update is especially significant given that a large portion of Americans are struggling to save adequately for retirement. A CNBC survey of 6,700 adults revealed that debt, limited income, and late starts are the primary obstacles to building a sufficient nest egg.
For older workers, these new limits present an excellent opportunity to catch up on savings. As certified financial planner Jamie Bosse points out, “This can be a great way for people to boost their retirement savings.”
Defined Contribution Limits Also Rise
In addition to individual deferrals, the overall “defined contribution” limit—which includes employee contributions, employer matches, profit-sharing, and other deposits—will increase to $70,000 in 2025, up from $69,000 in 2024.
Are Workers Taking Full Advantage?
While these changes offer substantial benefits, not all older workers are maximizing their 401(k) contributions. According to Vanguard’s “How America Saves” report, only 14% of employees contributed the maximum amount to their 401(k) in 2023, and just 15% utilized catch-up contributions.
The report also highlights how savings rates increase with age and income. For example, participants under 25 saved an average of 5.4% of their earnings, whereas workers aged 55 to 64 deferred an average of 8.9%.
A Call to Action for Older Workers
With the enhanced contribution limits and the ability to save significantly more starting in 2025, now is the time for older workers to reassess their retirement strategies. These changes provide an unparalleled opportunity to close the savings gap and prepare for a more secure financial future.
If you’re 50 or older, take advantage of these new limits to maximize your contributions and consult a financial advisor to ensure you’re on track to meet your retirement goals.
Read More
