How to Maximize Your Retirement Savings This Year
Written by: Samantha Masey, CFP®
With the new year in full swing, now is the perfect time to make sure you are maximizing your retirement savings and tracking your progress towards your financial goals. When it comes to planning, employer retirement plans remain one of the best ways to save for the long term. As usual, there have been some updates when it comes to contribution amounts and a few changes to the flexibility they offer. This article gives some tips for assessing your current plans and optimizing your savings.
How You Can Take Action
- Revisit Your Investment Allocation
- Take Advantage of Higher Contribution Limits
- New Super Catch-Up Contribution for Those Age 60 to 63
- Roth 401(k) Option
- Target the Recommended Retirement Savings %
- Follow These Tips for High Earners
Revisit Your Investment Allocation
One of the most impactful decisions an investor can make over the long term is to be invested in the stock market. The S&P 500 has averaged 10% annually over the last 100 years while bonds averaged 4-6% over the same time period. Individuals who are early to mid-career should consider being 100% in the stock market and become more conservative as they approach retirement. Even in retirement, it is important to have a large allocation to the stock market to maintain portfolio growth and keep up with spending needs.
Take Advantage of Higher Contribution Limits
The annual contribution limit for 401(k), 403(b) and 457(b) plans increased by $500 this year to $23,500. The catch-up amount for those over 50 remains $7,500. If you are someone that maxes out your contributions make sure to make this adjustment. A new super catch-up amount for these plans is also available.
Traditional and Roth IRA contribution limits also remain the same as last year at $7,000 and an additional $1,000 for individuals 50 or older.
The SIMPLE IRA annual contribution limit increased from $16,000 in 2024 to $16,500 in 2025. The standard catch-up for those 50 and older is still $3,850.
| CONTRIBUTIONS AND BENEFIT LIMITS | 2025 |
| Defined Contribution Plans | $70,000 |
| Defined Benefit/Cash Balance Plan Annuity | $280,000 |
| 401(k), 403(b) and 457 Plan Elective Deferrals | $23,500 |
| SIMPLE Plans | $16,500 |
| Traditional and Roth IRA | $7,000 |
|
CATCH UP CONTRIBUTIONS |
|
| 401(k), 403(b) and 457(b) Catch Up (Age 50 or over) | $7,500 |
| 401(k), 403(b) and 457(b) Increased Catch Up (Ages 60-63) | $11,250 |
| SIMPLE Plans Catch Up (Age 50 or over) | $3,850 |
| SIMPLE Plans Increased Catch Up (Ages 60-63) | $5,250 |
| Traditional and Roth IRA | $1,000 |
New Super Catch-Up Contribution for Those Age 60 to 63
The Secure Act 2.0 created a sweet spot for those who are ages 60-63 that allows them to contribute a higher amount than their working peers.
- 401(k), 403(b) and 457(b) plans - These individuals are allowed a super catch-up amount of $11,250 which is $3,750 more than the standard catch-up amount.
- SIMPLE IRAs - The super catch-up amount is $5,250.
This will greatly benefit people who are still working within that age range and are looking to save as much as possible in their later years of employment. It’s worth nothing that this is a new development and as such, it is unclear how this will be implemented. However, we will continue to update our website as new information comes out.
Roth 401(k) Option
Have you taken advantage of your Roth 401(k) opportunity? A majority of 401(k) plans now offer the option to make Roth contributions. Roth 401(k)s can be excellent savings vehicles for those who believe they are currently in a lower tax bracket than in retirement. It also represents a significant benefit for individuals who are early to mid-career to take advantage of long-term tax-free growth. A third benefit is it allows individuals to contribute more than the $7,000 Roth IRA contribution limit as the 401(k) limit is actually $23,500 this year. Lastly, it gives those who are high earners, who otherwise could not make Roth IRA contributions, the ability to contribute to a Roth as well.
Recommended Retirement Savings %
Generally speaking, the rule of thumb for retirement savings is to save 10-15% of your income. It’s important to start saving as early as possible in one’s career to have as much compound growth on your investments as possible. For those who are just beginning to save and are later in their career, they most likely will need to save a higher percentage than 15% to achieve their retirement goals.
In an effort to increase individual retirement savings, the Secure Act 2.0 requires new 401(k) plans established on or after December 29, 2022, to implement an automatic enrollment feature in 2025, unless an exception applies. The initial automatic enrollment contribution must be at least 3% but not more than 10%. Each year thereafter, that amount is increased by one percent until it reaches at least 10%, but not more than 15%. This new rule is great for encouraging individuals to get started but ultimately it is not a high enough savings percentage to achieve most retirement goals and thus needs to be increased to that 10-15% goal as soon as possible by the employee.
Tips for High Earners
Max Out Employer Plan Contributions
- If you are in a high tax bracket and looking to decrease your tax liability while also saving towards retirement, it is highly recommended that you save the maximum amount into your retirement plan.
Take Advantage of Deferred Compensation Plans
- Many individuals may not realize that they can max out contributions to their regular 403(b) or similar plans and contribute an additional $23,500 to their 457 (b) plan in the same year as long as the individual remains within the overall IRS limits for retirement savings ($70,000 in 2025). This is an excellent way to increase savings while also decreasing taxes.
Contribute to an HSA
- In order to have a Health Savings Account (HSA), an individual needs to be on a high deductible health insurance plan. If available, this account offers a triple tax benefit as all contributions are tax deductible, growth is tax deferred, and qualified medical withdrawals are tax free. Many people focus on building up this account as one of the ways they plan to pay for medical expenses in retirement. An individual does not need to be a high earner to have access to this type of account, but it is one of the few ways a higher earner with only W2 income can reduce their taxes. The 2025 contribution limits are $4,300 for individuals, $8,550 for families and a catch-up contribution for those 55 or older of $1,000.
Consider Making Roth 401(k) Contributions
- Choosing to make Roth contributions to a 401(k) as a high earner can seem painful in the short term as you are in a high tax bracket. However, it represents one of the only ways for high earners to get dollars into their Roth bucket. This is especially meaningful for those with mid-to-long term time horizons until retirement.
- According to the Secure Act 2.0, starting in 2026, employees who earn more than $145,000 in 2025 must make their catch-up contributions to a Roth 401(k).
If you are interested in learning more about any of these topics or need clarification on how to apply these tips to your own financial situation, please contact our team to set up a call.