Extra 401(k) Saving Easier in 2025
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It’s never too early to begin planning for retirement, and that means building up your savings. According to a survey by CNBC, out of more than 6,500 adults surveyed, 40% are behind on their retirement savings, and 21% have no savings at all. While you have plenty of time if you are just starting your professional career, older adults may feel more pressure when it comes to accruing a comfortable savings cushion before they officially retire. Luckily, you still have time when 2025 comes around to save extra.
If you are aged 50 years or older, you have the chance to make catch-up contributions to your retirement account. For Year 2024, the catch-up contribution limit for a 401(k) is $7,500. This is on top of your yearly contribution limit of $23,000. For those who are worried about not having enough funds for when they retire, this extra $7,500 can be a great boost to have.
Upcoming in 2025, this will change slightly as new rules from the 2022 Secure Act 2.0 go into effect. While we do not yet have the standard catch-up contribution limit for adults in the 50+ years range, starting next year, “workers aged 60 to 63 can boost annual 401(k) catch-up contributions to $10,000 — or 150% of the catch-up limit — whichever of the two is greater”. This can be a significant boost to retirement savings if you feel they are currently lacking.
However, once we are past 2025, the “upfront tax break” high-earning catch-up contributors would normally be able to take advantage of will be removed. This applies if you have a 401(k), 403(b), or 457(b) and made “more than $145,000 from a single company the prior year”. Since this rule won’t be enacted until January 2026, it’s best to make as many catch-up contributions as possible before then to ensure you maximize both retirement and tax savings.
Saving for retirement is incredibly important both so you can live comfortably when you eventually retire, and so you can be as tax efficient as possible. Many people may not realize it, but retirement planning is a key element of tax planning. If you are ready to take charge of your tax situation, we highly encourage reading XQ CPA’s tax planning guidebook. For more personalized guidance, reach out to our tax professionals today. We are here to help you.
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Want to pay less taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
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