Retirement plans are changing in 2025: What to know

If you are nearing retirement, you will soon be able to stash even more money into your nest egg -- if you can afford it.

The Internal Revenue Service announced that the maximum amount individuals can contribute to their 401(k) or similar plans in 2025 will increase to $23,500, up from $23,000 for 2024.

The federal government already lets those 50 and older make extra contributions so that they can save more as they near retirement age. This is known as a "catch-up" contribution.

In 2025, the standard catch-up contribution will stay the same, with a max of $7,500, according to the IRS.

But starting next year, workers ages 60 to 63 will be able to make “super” catch-up contributions, up to $11,250 annually, which is an additional $3,750.

That means they can potentially contribute up to $34,750 in total, each year, to a workplace retirement account.

The substantially higher catch-up contributions are part of SECURE 2.0, which President Joe Biden signed into law in 2022 as part of a $1.7 trillion omnibus spending package.

“While anything that encourages more investing is generally a good thing, I'm afraid this rule change probably won't make a big impact, " Bankrate's Senior Industry Analyst Ted Rossman, told ABC News. “There has to be a very small population between the ages of 60 and 63 who were maxing out their accounts and can now go higher.”

In 2023, just 14% of retirement plan participants maxed out their 401(k) limits, according to Vanguard Research.

Even those who have always maxed out their retirement savings contributions may need to reallocate funds as they age and start to face extra expenses, like sending children to college or caring for aging parents.

Aside from 401(k) plans and similar employee-sponsored plans, the limit on annual Individual Retirement Account contributions is unchanged next year, at $7,000, while the catch-up contribution for people 50 and older will remain $1,000.

Those limits apply to both traditional IRAs, which may offer a tax deduction depending on income, and to Roth IRAs, which don’t come with a tax deduction but do offer tax-free growth and withdrawals in retirement.

An aging population, coupled with fewer companies offering pensions, means that a smaller portion of the population overall is prepared for retirement.

The typical household headed by someone ages 55 to 64 has just $10,000 saved in a retirement account, according to an analysis of federal data by the Economic Policy Institute and the Schwartz Center for Economic Policy Analysis.

“Not to discourage investing at any age, but there's a reason why Einstein said compound interest is the eighth wonder of the world,” Rossman said. “Investing is more powerful when you're young.”

Still, catch-up contributions can be a valuable way to grow your retirement fund and enjoy the tax benefits.

Rossman said it’s also important to contribute regularly to your 401(k) and gradually increase your contributions. He suggested putting reminders in your calendar to increase your 401(k) contribution every year.

“The idea is that you're less likely to miss the extra money if you do it gradually or if you do it in tandem with a pay raise,” Rossman said.

For instance, he said, if you're currently contributing 5% of your salary, could you bump that up to 6% or 7% next year?

“Gradually dialing up your percentage makes it more likely that you'll stick with the approach," Rossman added, "and you won't diminish your standard of living.”