- The 401(k) contribution limit increased to $23,500 for 2025, up from $23,000 in 2024.
- The IRS sets 401(k) contribution limits and typically increases them by $500 annually.
- Those ages 60 to 63 can make a catch-up contribution up to $11,250 in 2025.
A 401(k) is a robust retirement savings vehicle designed to help employees build long-lasting savings through investment gains and compound interest. It is usually offered by employers and is considered one of the best retirement plans for growing a long-lasting nest egg.
However, there's a cap on how much you can contribute to your 401(k) each year. The Internal Revenue Service sets contribution limits for all retirement accounts, including 401(k) plans. These change annually and are based on recent economic data.
Here are the limits, tax implications, and strategies for contributing to a 401(k) in 2024 and 2025.
Understanding 401(k) contribution limits
What is the importance of the annual 401(k) contribution limit increase? How much does a 401(k) increase each year?
Importance of contribution limits
Contribution limits on retirement savings vehicles like 401(k) plans and IRAs encourage participation and ensure everyone receives equal benefits. Without limits, higher earners could contribute sustainably larger sums of money into tax-advantaged accounts for tax-deferred withdrawals and long-term gains. This could disadvantage the average worker, discouraging them from participating altogether.
Additionally, contribution limits for retirement savings accounts typically increase yearly to match inflation and the increased cost of living.
Annual updates to contribution limits
The IRS determines 401(k) contribution limits each year and usually increases them by around $500. The outlier was 2023, when one of the biggest increases went up by $2,000 from the previous year. The year following, the limit increase mirrored the standard annual $500 increase.
Contribution limits for 401(k)s in 2024 and 2025
Here are the 401(k)s contribution limits in 2024 and 2025, including catch-up contributions for older employees.
Employee contribution limit 401(k)
| Year | Contribution limit (under 50) | Catch-up contributions | Employee and employer contributions total |
| 401(k) contribution limit 2024 | $23,000 | Age 50 and older:$7,500 | $69,000 |
| 401(k) contribution limit 2025 | $23,500 |
Age 50-59 and 64+: $7,500 Age 60-63: $11,250 |
$70,000 |
Contributions to 401(k)s are automatically deducted from your paycheck. It's best practice to contribute enough of your salary to unlock the full benefit of your employer-sponsored match (if applicable). That said, don't contribute more than is reasonable for your budget, as you won't be able to withdraw until you're at least 59½.
Understanding how much you need to retire can give you a better grasp of how much to save each month. But over-contributing also has consequences. Consider your entire financial situation when allocating a portion of your wages into your 401(k) plan so you won't need to withdraw prematurely later.
Catch-up contributions for age 50 and older
If you're 50 or older, you can make what the IRS calls "catch-up contributions," which help you save more as you near retirement age. For 2024 and 2025, you can contribute an additional $7,500 to traditional and Roth 401(k) accounts and $3,500 to a SIMPLE 401(k).
In 2025, SECURE 2.0 adds a higher catch-up contribution limit of up to $11,250 for those aged 60 to 63. The total contribution limit for those who qualify for a higher catch-up contribution limit is $34,750 in 2025.
The SECURE 2.0 Act plans to adjust retirement savings plans and contribution limits further — including 401(k) catch-up contributions. Starting in 2026, older workers earning over $145,000 annually will no longer be able to deposit catch-up contributions into a traditional 401(k) plan. Instead, those catch-up contributions will have to be placed in a Roth 401(k), thus altering the fundamental tax advantages of those funds.
Older, high-earning workers will receive reduced tax savings and modified take-home pay. Rather than collecting the immediate tax benefit of a traditional 401(k) contribution, catch-up contributions will be taxed as Roth contributions.
Total contribution limit (including employer contributions)
There's an individual 401(k) contribution limit and an aggregate one, including your and your employer's contributions. The aggregate annual limit for 2025 is 100% of your compensation or $70,000. This is a $1,000 increase from 2024.
"These limits are aggregate totals, so if your employer offers both a traditional and a Roth 401(k), the maximum that you can put into both cannot be over these new limits," says Faron Daugs, a CFP, wealth advisor Harrison Wallace Financial Group. "You can split the contribution or put it all into one type of 401(k), but you cannot go over the participation limit."
Maximizing your 401(k) contributions
While any contributions to a retirement savings plan are great for long-term wealth building, you'll get the most out of your plan by maxing out its benefits.
Strategizing to reach the maximum contribution limit
Here are tips to maximize your 401(k) plan based on the 2024 and 2025 limits:
1) Start contributing early
The earlier you start contributing to your 401(k), the more time your money has to accumulate interest. The money in a 401(k) is compounded and invested. Compounded money grows to combat inflation rather than losing value by sitting idly in a regular savings account.
2) Regularly contributing to your 401(k)
Regularly contributing to your 401(k), even in small increments, can make a big difference down the line. However, paying down high-interest debt (such as loans or credit card debt) shouldn't be put off, either. It may not be feasible to contribute a large chunk of change toward your retirement savings if you have existing debt payments.
3) Increase contributions gradually
Although you may now only be able to contribute a little here and there to your 401(k), hopefully, you can increase your contributions gradually. Keep depositing a percentage of your income toward retirement savings. Then, as your salary increases, you should be in a better financial situation to increase your contributions and further grow your nest egg.
4) Max out any employer match
Employer matches are essentially free money, so maxing out your 401(k) match puts more money in your pocket. But make sure to familiarize yourself with your individual 401(k) plan policy and limitations. Not all 401(k)s offer employer match contributions.
Some employers now offer a 401(k) match for qualified student loan payments. For each dollar you contribute toward repaying your student loans, your employer will match up to a predetermined amount in your 401(k) or other qualifying retirement plan.
Benefits of catch-up contributions
Catch-up contributions benefit older workers by allowing them to save more for retirement during their peak earning years. By allowing bigger contributions, they can grow their money faster and further close the gap between their current savings and retirement goals.
Older workers can compensate for lost time if they couldn't save enough when they were younger. Setting aside money for retirement with an entry-level salary can be difficult, especially when combined with debt, high cost of living, and other long-term savings goals. Workers 50 and older typically have more financial flexibility to allocate larger portions of their wages to retirement without jeopardizing their current budget.
Moreover, contributing to a traditional 401(k) lowers your taxable income. You will have to pay tax upon withdrawing during retirement, but if you are in a lower income bracket compared to your working years, you will pay less in income tax.
Tax implications of 401(k) contributions
Traditional 401(k)s are funded with pre-tax dollars, meaning you'll pay taxes on withdrawals once you retire. Roth 401(k)s, on the other hand, work the opposite way. You fund these accounts with after-tax earnings, making your eventual withdrawals tax-free.
The tax benefits of traditional 401(k) plans are generally best for employees who predict their retirement income will be lower than it was in their working years. Roth tax benefits are best for employees who predict their income will be higher in retirement than in their working years. Unlike Roth IRAs, there are no income limits for Roth 401(k)s.
Employers may offer just one type of account or both traditional and Roth 401(k)s. While they function differently, the IRS-established contribution limits are the same across any traditional or Roth 401(k)s you have open.
Over-contributing to 401(k) plan
If you accidentally contribute more to your 401(k) than the IRS allows, you'll first need to notify your 401(k) plan administrator and ask them to distribute the excess contributions by the April 15 tax filing deadline.
"If the corrective distribution is made by tax filing time for the year of the excess contribution, it is included in income in the year it was contributed, and a corrected W-2 should be issued, "Cindi Turoski, a certified public accountant, CFP, and managing partner of Bonadio Wealth Advisors. "The earnings it had would be distributed, too, and are taxable in the year received and reported to you on a Form 1099-R."
If you fail to request that the excess funds be paid out before tax day, you must withdraw them as distributions. These come with a 10% penalty if you're under 59½.
"The good news is that for most participants who have remained with the same employer during the year, most plans have infrastructure and safeguards to ensure you don't exceed IRS contribution limits," says Joe Buhrmann, CFP and financial planning consultant at eMoney Advisor.
Special considerations for 401(k) contributions
Higher-earners and those interested in 401(k) loans should consider the following.
Contributions for high-income earners
If you're what the IRS considers a "highly compensated employee" (HCE), there may be additional limitations on how much you can contribute to your 401(k) plan. These rules ensure that a plan's "annual contributions don't overtly benefit HCEs more than non-highly compensated employees."
"Some 401(k) plans may limit contributions if you are considered a highly compensated employee, effectively limiting no more than 2% more of your salary than the average non-highly compensated employee contribution," says Buhrmann.
The IRS qualifies an HCE as an employee making $160,000 in 2025 ($155,000 in 2024) or someone with more than 5% stake in the business. Employees in the top 20% of compensation at a company may also qualify as HCEs.
Impact of 401(k) loans on contribution limits
A 401(k) loan could be a solution to paying off high-interest debt or covering an emergency if you've exhausted all other options. But borrowing from your retirement account comes with a lot of risk if you can't afford to repay the loan or leave your job before the repayment term ends.
In most cases, it's safer not to touch your retirement savings and resort to other options for borrowing cash, whether a low-interest personal loan or a 0% APR credit card. Before deciding on a 401(k) loan, consult a CFP who can help you explore all your options and predict how the loan would impact your retirement.
A 401(k) early withdrawal may be another viable option in a pinch, but it's also far from ideal. You can avoid early withdrawals and penalty fees by contributing only what is reasonable for your current budget based on expenses, goals, and existing debt.
Contribution limits for 401(k)s FAQs
What is the 401(k) contribution limit for 2025?
The 401(k) employee contribution limit for 2025 is $23,500. For those aged 50 and older, the catch-up contribution limit is $7,500. The total contribution limit, including employer contributions, is $70,000.
What are catch-up contributions?
Catch-up contributions are contributions that allow employees aged 50 and older to contribute an additional amount to their 401(k) or IRA beyond the standard contribution limit. This helps older workers boost their savings as they near retirement.
How do employer contributions affect the 401(k) contribution limit?
Employer contributions affect 401(k) contribution limit for the aggregate limit, which is the combined limit for employee and employer contributions. In 2025, the aggregate limit is $70,000.
What are the tax benefits of 401(k) contributions?
Tax benefits of 401(k) contributions are as follows: Contributions to a traditional 401(k) are made with pre-tax dollars, reducing your annual taxable income. Roth 401(k) contributions are made with after-tax dollars, which allow for tax-free growth and withdrawals in retirement.
Can I contribute to more than one 401(k) plan?
Yes, you can contribute to more than one 401(k) plan if you have more than one employer offering a plan. However, the total employee contribution limit applies across all plans combined. In 2025, you can contribute up to $23,500. Employees 50 or older can contribute up to $31,000.
