global Tax How to Maximize Your 401(k) in 2025: Top Strategies for a Secure Retirement February 11, 2025 Are you prioritizing retirement savings? If not, you might want to be! Here are some strategies you can implement in 2025 to maximize your 401(k) and ensure a comfortable retirement. Does your employer offer a 401(k) or Roth 401(k)? If so, contributing as much as you can to your plan in 2025 is a smart step toward building a secure and comfortable nest egg for the future. What are the 2025 retirement contribution limits? Check out our blog, New Retirement Plan Contribution Limits for 2025. For 2025: contribution limits are on the rise! You can now save up to $23,500 (up from $23,000 in 2024). If you’re 50 or older by year-end, you can increase your savings with an additional $7,500 in “catch-up” contributions, bringing your total potential savings to $31,000 (up from $30,500 in 2024). Starting in 2025, a new rule allows 401(k) participants aged 60 to 63 to contribute even more, by increasing the catch-up contribution limit to $11,250. What’s the difference between traditional and Roth 401(k)s? Here’s a chart to help illustrate the features of each:Traditional 401(k)Roth 401(k)ContributionsPretax contributions reduce taxable income which can potentially reduce your marginal tax bracket and exposure to the 3.8% net investment income tax.Contributions are made with after-tax dollars and do not reduce current taxable income.Tax Treatment of EarningsPlan assets grow tax-deferred, meaning no taxes are paid until distributions are taken.Earnings grow tax-deferred but are tax-free if taken as a qualified distribution.Employer MatchEmployer may match some or all of contributions on a pretax basis.Employer match, if offered, is typically on a pretax basis, but your contributions are still after-tax.Contribution Limit (2025)The contribution limit is $23,500, with potential additional catch-up contributions if eligible.Same as traditional 401(k).Tax Impact on PaycheckContributions reduce the amount of taxes withheld from your paycheck.Contributions do not affect the tax withheld from your paycheck.Best ForIndividuals looking to reduce their taxable income in the short term or expect to be in a lower tax bracket while in retirement.Individuals who are in a lower tax bracket now than they expect to be in the future or want tax-free retirement income.Distribution TaxesDistributions are taxed as ordinary income.Qualified distributions are tax-free. Can you have both? Yes, if your employer offers both plans, you can have both a Roth 401(k) and traditional 401(k). Of course, the total contribution to both accounts cannot exceed the annual contribution limits outlined by the IRS. Wondering how you can maximize savings? We can help.
