Today we’re going to talk about contribution limits to 401Ks and IRAs for 2025. First thing I’m going to talk about is the contribution limits to 401Ks and 403B for 2025. That contribution limit normally is $23,500. And I say normally because with any rule that the government makes, there are generally exceptions. Okay? So $23,500, that’s the first thing you need to stick in your mind. Now, if you’re over 50 years of age in general, you can also add a catch-up contribution. It’s not ketchup on your high hamburger or your hot dog, but a catch-up because you might be behind in the way of retirement, and that is $7,500. So the second number you need to remember is if you’re over 50 in a 401k or a 403B, you can catch up $7,500. The third thing I want to point out is for 2025, there is another exception, and that is if you are between the ages of 60, 61, 62, 63, your catch-up contribution for this one special year is $11,250.

Don’t ask me why they did that. Don’t ask me what the reasoning was. They are just adding a catch-up contribution limit for people ages 60 to 63 for the year 2025 of $11,250. Do you fall in that category? Catch up!

Now let’s talk about IRAs, and that could be a regular IRA or a Roth IRA. For a regular IRA or a Roth IRA, the 2025 contribution, (this is the fourth number you need to remember) is $7,000 for the year. That is the normal contribution. But number five, there is a catch-up contribution if you’re over 50 for IRAs – Roth or regular, and that is if you’re over 50 years of age, you can add an additional $1,000. Now, just a little sidenote here, there are other numbers for other plans, SEP IRAs, simple IRAs, 457s, all kinds of other things. But I’m dealing today on this podcast with just the core 401Ks, Roth 401Ks, 403Bs, Roth 403Bs, IRAs, and Roth IRAs.

Now, let’s talk about why you might want to be in these plans. There are some advantages if you’re in a regular 401k or a regular IRA, in that the money that goes in there is pre-tax. You don’t get taxed on it right now, let’s say you’re in a very high earning season of your life where your income is way up there. Well, anything you put in on 401k or an IRA, it is “pre-tax” so you don’t pay tax on it now as it goes into the account, but you pay tax on it when it comes out. Now, let’s talk about the other side, the Roth side of the 401k, 403B, and the IRA. If you put money into the Roth this year and pay the tax on it, then you will never pay tax on it again, if you’re married, your spouse will never pay tax on it again, if you leave it to your heirs, your heirs will never pay tax on it again once you pay the tax on that money and put it into a Roth.

Another advantage to the 401k and 403B is you may have a match, whether it’s a Roth or a regular, you may have a match. Some companies may be matching 5%, 6%, and that means that if you put in 5% of your salary, they’re going to match it with 5%. Now, most of those matches are around 2%, but I’ve seen a lot of really good matches lately of people who’ve come into our conference room. So find out what your company match is. You say, is that a good idea? It’s free money! I mean, if you put in a dollar and the company matches it with a dollar, you have $2. Now, that’s a good deal. Another advantage to these plans, particularly the 401k and the 403B is at $23,500 or at a total with the catch-up of $31,000, you’ve got a lot more space in there to contribute.

It’s got a higher maximum you can put in there rather than the $7,000 or $8,000 that you might be able to put into a Roth. And remember, if you’re 60, 61, 62 or 63, you’ve got an added bonus in your catch-up. This year is $11,250. Another great thing about these plans is, and it’s just one simple word, they’re automatic once you set them up, if you set them up in the right way, and we’re going to talk about that next. But if you set them up in the right way, particularly the 401k and the 403Bs, it just automatically like clockwork comes out of your salary before you ever get it. And so therefore you begin to get used to that and you don’t miss it as much as if it comes to you and then you have to write a check for it to go into some other type plan.

And while we’re talking about the nuts and bolts of the plans and the advantages, I also want to point this out. You may be eligible depending on your earnings, you may be eligible for both the maximum in the 401k or 403B and the maximum in the Roth or the regular IRA. You need to find that out from your financial advisor. Now, here’s the key. If you’re still listening, all of the other stuff is just nuts and bolts. Here’s the key. You have to take action. Only 56% of the people, according to the Employee Benefits Research Institute, only 56% of the people who have the opportunity to be involved in an employer 401k, 403B, or 457 actually participate. It’s a plan that automates your retirement savings. So you’ve got to take action number one, if you’ve never started, you’ve got to start now on those company plans.

You’ve got to take action. Here’s how it works, you’ve got to go to your HR people, your HR department or get online to your plan. Now, this also works if you’re contributing, but you’re just giving it lip service. I mean, you’re just giving it $25 a paycheck or $50 a paycheck? Well, guess what? If you don’t get serious about your retirement, nobody else is going to be serious about your retirement. So you’ve got to take action with these increased limits and knowing these limits, they don’t do you a bit of good if you sit there just contributing $25 a paycheck. So go to your HR person if you do have a website because you’re already signed up for it. Sometimes you can go to that website and increase your contribution.

You may need to get a financial advisor to just give you some input. Should you put it into a pre-tax account where you save the tax on it now, or should you put it into a Roth account where you pay the tax on it now? But the number one thing you’ve got to do is get started. And if you’re already started, you need to increase what you’ve got. Now, what do I mean increase? I mean, even if you’re doing the max right now in your 401k or 403B, when we turn the calendar at the beginning of 2025, you’ve got an extra $500 you can put away. Hey, that is like $40 bucks a month. You’re not going to miss that. I mean, that’s very insignificant compared to a retirement that’s successful versus a retirement that’s not. So take action. Get online, call your HR, increase your contribution to match to the most that you can contribute to that new maximum.

And particularly if you’re 60 to 63, you’re topping off your retirement, that contribution catch-up is no longer $7,500 for you this year. It’s $11,250. So make a call, get online, increase what you’re giving. Take advantage of what’s put in front of you. Now, if you’ve got an IRA or a Roth because you have added onto your company plan or that’s the only plan that’s available to you, you’re going to have to take action there as well. If you’re contributing, raise the contribution. Raise the contribution in every way you possibly can. If you’re not giving the maximum, you’re not putting in the $7,000 if you’re under 50 or the $8,000 if you’re over 50, raise it a bit to the maximum. Let me tell you how to do that. When you get a raise or right after the first of the year, sometimes companies in January, February, they do all their books for the previous year and they give bonuses, particularly for people in the executive level.

You may get a $30,000 bonus and you say, wow, the biggest thing I hear about those $30,000 bonuses through the years is “You cannot believe how much tax I had to pay on that!” Well take a chunk of that, if you didn’t contribute the max to your 401k or 403B, take a chunk of that $5,000, sometimes $10,000 and catch-up and put it up to the maximum in your 401k or your 403B, and guess what? You’ve lowered your tax for the year by contributing to that regular 401k or 403B. You say, wow, that’s a nice trick. It’s actually not a trick. It’s just something we do every single day. As a professional financial advisor trying to get our people to take advantage of every single opportunity they have to make sure that when they get to retirement, our major mantra is we work with pleasant people to make sure you have enough income for the rest of your life and you pay as little as you’re legally required to pay in taxes.

So to summarize, new year, new opportunity. New opportunity for you to get better ready for retirement, raise your contributions if you’re eligible. If you’re not giving the maximum, raise your contributions. You get a raise, give some of it to your 401k and take some of it. You get a bonus, give some of it to yourself and some of it to your 401k. Hey, in the final analysis, when they changed the laws back in 1978, they went from that defined benefit plan where the company just gave you that pension and gave you that benefit. Now it’s a defined contribution plan, and it all depends in 2025 on what you’re contributing. Hey, I promise you every week, if you’ll give me a few minutes, I’ll do my best to increase your financial knowledge. And if we can help you particularly about a situation, a question, anything you’ve got, go to the website, get an appointment, give us a call. We’ll see you next time!