The IRS has updated the annual contribution limits to workplace retirement plans including 401(k) plans for next year (2025). These amounts are tied to inflation and in most years adjust higher. Maximizing your contributions is one of best financial tools families in the DC metro area can utilize towards financial independence.
This year represents an especially unique change as well as workers age 60-63 will be able to take advantage of an even larger contribution. This and other upcoming changes in 2026 were brought on by recent tax legislation – The Secure Act 2.0.
Contribution Amounts for 2025
Age 50 and Under - $23,500/Year
($1,958.33/month)
Age 50 – 59 - $31,000/Year - $23,500/Year + $7,500 Catch Up Contribution = $31,000
($2,583.33/month)
Age 60 – 63 - $34,750/Year - $23,500 Year + $11,250 Bonus Catch Up = $35,250
($2,895.83/month)
Age 63+ - $31,000/Year - $23,500/Year + $7,500 Catch Up Contribution = $31,000
($2,583.33/month)
How old are you for this calculation?
Now that there are four different age brackets it is important to recognize which one you fall into. The IRS determines your age based on how old you will be by the end of the year.
Example) You turn Age 60 on 12/31/2025 – You are eligible for two catch up contributions and can make $35,250 in annual contributions for 2025.
Why this is so important
Working towards maximizing your retirement plan contributions is one of the best things you can do for your financial goals. Every single dollar contributes magnifies long-term benefits.
These benefits are derived from three parts – 1) investing and growing more of your dollars as opposed to spending them 2) compounding of your investments returns 3) tax compounding of positive tax savings spread over many years. As a reminder, compounding is the mechanism when your investments interest earns interest on itself. This can be accomplished through investment returns as well as tax savings.
Retirement accounts offer tax advantages, such as tax deductions or tax-deferred growth, which can further boost savings and decrease tax burdens. These tax benefits make maximizing contributions an efficient way to grow wealth over time while optimizing current tax liabilities.
Tax Unfriendly Change in 2026
Starting in 2026 current laws are slated to take effect that will limit what type of contributions high income earners can make. If your income is too high your catch-up contribution will only be allowed to be made on after-tax basis. Limiting your potential for a greater current year tax deduction.
This makes taking advantage of this year’s extra catch-up contributions all the more worthwhile.
Modest Adjustments
If you are currently in a place where you are not able to maximize your contributions that is OK. Working to find ways to make a modest adjustment is a great starting point. For example, if you are doing a 6% contribution and you make $250,000/year that would put you at $15,000/year. This would be short by $8,500.
If you can make a 1% contribution increase or $2,500/year that will already put you in a stronger position. The next year you can evaluate again if you are able to increase your contribution amount by another 1%. Keep repeating at the start of every new year until you are at the maximum contribution.
At high income levels that are common in the DC metro area if you are not able to hit maximum contributions you likely are behind in retirement savings. See retirement savings checkpoints.
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GuidePoint Financial Planning - A Reston Virginia Financial Advisor
Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.
All material above is for educational purposes only and is no way a recommendation to buy or sell investment securities. You should always review investment and financial changes with qualified professionals. The data referenced is very short-term in nature and is used for educational means.
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