Your 401(k) Could Get a Whole Lot Bigger in 2025—Here’s How

Saving for retirement—while trying to balance the expenses of everyday life—is a source of stress for many people. Recent surveys show that only 46% of Americans have retirement accounts, while 57% of American workers worry that they are behind on saving for retirement. Those in Generation X, who are in their late 40s and 50s and entering their final decades of work, are reportedly the least confident about their retirement prospects compared with other generations, according to data published in 2024 by Fidelity. Their biggest retirement mistake? Starting too late and saving too little as a result.

Making good use of a 401(k) can help people catch up if they feel like they are behind on their savings. This year, workers can defer up to $23,000 of their salary into their retirement plans, and those who are ages 50 and older can defer an extra $7,500. But there’s a new 401(k) rule for 2025 that can help even more Americans save big for retirement—and quickly, at that.

To find out more, we turned to three retirement- and financial-planning experts. Keep reading to learn about the changes coming to 401(k) accounts and how they might benefit you.

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What is the new 401(k) rule that can help you save more?

As outlined in the 2022 SECURE 2.0 Act, the IRS is offering a “catch-up” plan that starts on Jan. 1, 2025, and aims to help older workers beef up their retirement savings. The new rule allows workers between the ages of ages 60 and 63 to make a catch-up contribution of either $10,000 or 150% of the catch-up limit—whichever is greater—to their 401(k) retirement savings.

“This will help many people save more into tax-deferred retirement accounts. Plus, the amount saved will grow tax-free until the money is withdrawn,” says chartered financial analyst Doug Carey, the founder and owner of retirement- and financial-planning software WealthTrace. “This could translate to an extra $50,000 in their retirement account over 20 years if they are able to take advantage of this new savings rule.”

While the IRS has not yet announced the catch-up contribution limit for 2025, the previous rule for 2024 allowed for a catch-up contribution of $7,500 for people ages 50 and up.

Is everyone eligible?

The new catch-up contribution rule for 401(k) accounts is specifically for workers ages 60 to 63. To take full advantage of this additional catch-up contribution, you need to contribute the maximum amount allowed—which for this age group is $10,000—to your 401(k) by the end of the calendar year.

Overlooking this 401(k) perk is a big money-saving mistake, especially if your retirement savings are looking a little low.

“This rule is especially beneficial for older workers who may have fallen behind on their retirement savings,” says Paul Brahan, a financial advisor at Fort Pitt Capital Group. “By taking advantage of this additional contribution limit, individuals can potentially accumulate a larger nest egg, which can provide greater financial flexibility and peace of mind in retirement.”

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What other 401(k) plan changes are happening in 2025?

In addition to the change for seniors, there are two other important 401(k) changes happening in 2025—and they affect workers of all ages. Read on for facts about retirement policies going into effect next year.

Automatic 401(k) opt-ins

Starting in 2025, all new 401(k) plans must automatically enroll eligible employees unless they decide to opt out. (There are some exceptions: people who work for a company with fewer than 10 employees, a business under three years old, the government or a church.)

You or your employer will set your contribution rate, and this rate will automatically increase by 1% each year until it reaches the maximum set by your employer—unless you choose otherwise.

Easier 401(k) plans for part-time workers

The second important change affects part-time workers: Right now, part-time workers need to work 1,000 hours for one year, or 500 hours for three straight years, to be eligible for their employers’ 401(k) plans. In 2025, the three-year rule will be reduced to two years, which will help gig workers become eligible for retirement savings quickly.

How else can you bulk up your retirement savings?

No matter your age, there are a number of ways to increase your retirement savings right now, according to budgeting and consumer-spending expert Andrea Woroch. Here are four ways to get started today:

• Automate your retirement savings. Set up an automatic withdrawal from your paycheck directly to your employer-sponsored 401(k) or an IRA account. “If you increase these payments every year, or any time you get a raise or bonus, you put that extra money you are making directly into your funds, so it’s out of sight and out of mind,” Woroch says.

• Pay off high-interest debt. Managing your debt is crucial as you enter retirement so you don’t get stuck paying off balances with your retirement income, Woroch says. After all, these interest rates can drain your funds quickly. “Create a repayment plan now to prepare for a debt-free retirement, which will allow you to stretch your retirement funds further,” she advises.

• Hack monthly bills. Reduce your monthly obligations however you can to boost your budget, which will allow you to put more toward retirement and, ideally, max out your contributions. “Begin by negotiating rates with current providers, canceling unused subscriptions and increasing your insurance deductibles,” Woroch says.

• Beware of lifestyle creep. Try not to spend more when you make more, as this can get in the way of saving for retirement. “Set a budget and track expenses to ensure you aren’t spending more than you make,” Woroch says. “This helps you prioritize your saving goals.”

No matter how old you are or where you are in your retirement-savings journey, it’s never too late to plan for your financial future. If you’re unsure about how to get back on track, a financial advisor can help you navigate the best ways to save.

Need some incentive to save? Just think: If you give your savings enough of a boost, you may be able to treat yourself to that dream vacation during retirement.

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Sources:

• Doug Carey, chartered financial analyst, registered investment advisor and founder and owner of WealthTrace; interviewed, October 2024
• Paul Brahan, certified financial planner and chartered retirement-planning counselor; interviewed, October 2024
• Andrea Woroch, nationally recognized money-saving and budgeting expert, writer and speaker; interviewed, October 2024
• The Federal Reserve: “Survey of Consumer Finances”
• Bankrate: “Survey: More than half of American workers feel behind on their retirement savings”
• Fidelity: “2024 State of Retirement Planning”
• Senate Committee on Finance: “SECURE 2.0 Act of 2022”
• IRS: “COLA increases for dollar limitations on benefits and contributions”

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