New Retirement Savings Limits for Pre-Retirees

There’s a new wrinkle to how much pre-retirees can contribute to their 401(k), 403(b) or similar accounts. Beginning in 2025, it will be possible for workers of a certain age to save nearly $35,000 in their 401(k). I realize that’s a lot, but for those of you who are eager to do some extra-serious saving as retirement nears, you’ve now got the green light to save a lot more.

Before I get to who is eligible for the new higher limits, let’s review the standard catch-up contribution rule that has been around for a long time:

Anyone who is at least 50 years old can make an additional “catch-up” contribution to their retirement account. That’s still in play. In 2025, while the regular contribution limit is $23,500 for anyone younger than 50, anyone at least 50 is eligible to make an additional catch-up contribution of up to $7,500 for a total annual limit of $31,000.

New higher limits for savers between the ages of 60-63

Beginning in 2025, there are even more savings opportunities for workers who are between the ages of 60 and 63. Instead of the $7,500 limit for catch-up contributions, workers who are 60 through 63 are allowed an annual catch-up max of $11,250, for a total 2025 contribution limit of $34,750.

That can give a serious boost to your retirement security.

I know it’s a lot, but rethinking your spending might help you find the money to save more in your 401(k). And the payoff can be huge. Let’s focus on the $31,000 limit for everyone at least 50 years old. If you manage to save that much for just three consecutive years and earn an average annualized rate of 5%, it will be worth around $102,000. If that sum then continues to grow at 5% annually for another 10 years, it will be worth more than $165,000 in 10 years and around $270,000 in 20 years. For those of you in the 60-63 age range, you can build even bigger savings.

In 2025, you can opt to make your catch-up 401(k) contributions into a traditional or a Roth account. And beginning in 2026, higher-income savers will be required to save in a Roth 401(k). That’s good news as far as I am concerned. I strongly advise pre-retirees to focus on saving in Roth accounts. While Roth contributions are made with money that has already been taxed, the payoff comes in retirement when all withdrawals will be tax-free, and beneficiaries will not owe income tax on any inherited 401(k) balances. The chance to build up tax-free savings now is especially important if you have already done decades of savings in a traditional retirement account. All money withdrawn from traditional accounts is taxed as ordinary income, for the owner and the owner’s heirs.