Maximizing Your Retirement Contributions: Tips for 2025
Saving for retirement is one of the best ways to build long-term financial security. Making the most of your contributions each year can have a big, compounding impact down the road. With new contribution limits and opportunities in 2025, it is a great time to ensure you are taking full advantage of tax-advantaged retirement accounts and planning strategies. By fully utilizing employer matches and tax benefits along with making catch-up contributions, you could potentially make a substantial difference in your retirement savings. Here are some practical strategies to help you maximize your contributions and set yourself up for financial success in the years to come.
1 – Contribute the max to your sponsored plans
Maxing out your employer-sponsored plan (401(k), 403(b), 457(b), etc.) is a good way to build a foundation for the future. For 2025, many employer-sponsored plan contribution limits increased, so it is important to be aware of the 2025 contribution limit for your plan and make the full contribution if you are able. Individuals over the age of 50 should consider making an additional “catch-up contribution” if your specific employer-sponsored retirement plan allows for this (many of them do).
2 – Maximize your employer match without missing out
While this may seem like straightforward advice, it is important to note that maxing out your employer-sponsored retirement plan early in the year could mean you are missing the full value of your employer matching contributions. Many employers match retirement contributions on a per-paycheck basis, requiring employees to contribute a certain percentage of each paycheck to receive the full match. This could be problematic for individuals who max out contributions early in the year. Some employer-sponsored retirement plans offer a “true-up” contribution at the end of the year, which includes the remaining employer match should you max out contributions before the year ends. It is important to confirm how your plan is structured with your company’s human resources department prior to making deferrals.
3 – Take advantage of IRA contributions
In addition to employer-sponsored retirement plans, contributing to an Individual Retirement Account (IRA) can further boost your retirement savings. For 2025, the total contribution limit for both traditional and Roth IRAs has remained constant at $7,000, with an additional $1,000 “catch-up contribution” if you are age 50 and older. It is important to consider your income level and the phase-out limits for income tax deductibility of a traditional IRA contribution. If you are making non-deductible contributions to a traditional IRA, it may make sense to convert these funds to a Roth IRA shortly after contributing. Converting to a Roth IRA allows for tax-free growth and eliminates Required Minimum Distributions (RMDs) in retirement but will increase income tax immediately in the year of conversion.
4 – Consider a Health Savings Account (HSA)
Unlike other retirement accounts, HSAs offer a unique tax advantage that no other savings vehicle does – the “Triple Tax Advantage.” An HSA is funded with tax-deductible contributions, grows tax-free, and provides tax-free withdrawals for medical expenses. While HSAs are designed to cover medical expenses, they can also act as an additional retirement account if you strategically invest and preserve the funds. If you can pay for all/most medical expenses out of pocket and leave your HSA funds untouched, the account can grow significantly over time. Once you reach age 65, you can withdraw the funds for any purpose without paying a penalty (it is important to note that non-medical withdrawals will be subject to ordinary income tax, like a traditional IRA and 401(k)). For 2025, the HSA contribution limits have increased to $4,300 for individuals and $8,550 for families, with an additional $1,000 per year catch-up contribution beginning when you are age 55. This “retirement savings” tool will only be available to employees who are currently enrolled in their employers’ High Deductible Health Plan (HDHP), so it is important to assess your current financial situation to determine if a HDHP makes sense.
5 – Explore retirement options if self-employed
If you are self-employed, you have some unique opportunities to help maximize your retirement contributions in 2025. Options like a SEP IRA, Solo 401(k) or SIMPLE IRA can help you save more than a traditional or Roth IRA due to the significantly higher contribution limits. Depending on the specific plan, you could take advantage of tax-deferred growth as well as tax-free growth with Roth options. Each self-employed retirement plan has different tax benefits, contribution limits and administrative requirements, so be sure to work with your accountant or a financial advisor to determine the best fit for your business. Choosing the right plan can help you grow your savings faster, reduce your taxable income and provide a more secure retirement.
No matter where you are in your retirement journey or career, taking full advantage of the planning strategies available to you is a powerful way to support your financial future. The key is to start early, stay disciplined and informed on changes, and know the various options for your specific circumstances. Careful financial planning and regular contributions can assist in the growth of retirement funds and aid in establishing long-term financial security.
For more information, please contact any of the professionals at Fiducient Advisors.
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