Here’s some good news for workers who are using a 401(k) plan to save for retirement: You can stuff more in your account next year than you can this year. That’s because the cap on how much you can put in a 401(k) plan is adjusted each year to account for inflation, and that’s pushing up the 401(k) contribution limits for 2025.
That helps employees who can max out a 401(k) account each year. They can put an extra $500 into their account in 2025.
However, even if you can’t put the full amount in every year, it’s wise to contribute some money to a 401(k) account each year if you have access to this type of retirement plan. You’ll probably need some extra income once you retire, since Social Security alone probably isn’t going to pay all the bills in your golden years. Plus, depending on the type of 401(k) account you have, you can access some terrific tax breaks either now or once you retire.
So how much can you contribute to a 401(k) account in 2025? Read on to find out.
Related: New Tax Brackets for 2025 Are Out [What Tax Rate Will You Pay?]
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Tax Benefits of 401(k) Plans
Before jumping into next year’s 401(k) contribution limits, let’s go over a few basic facts about 401(k) plans and how your account is taxed.
A 401(k) plan is a retirement savings plan established by your employer. The employer-sponsored retirement accounts set up under a 401(k) plan can be either a traditional or Roth account, depending on what your company offers. Each type of 401(k) account has its own tax benefits.
The main difference between a traditional 401(k) account and a Roth 401(k) account is when funds in the account are taxed.
Money contributed to your traditional 401(k) account isn’t included in your taxable income for the year. So, you get a tax break right away. Funds in the account then grow on a tax-deferred basis (i.e., you don’t have to pay tax each year on any interest or earnings). However, you eventually have to pay income tax on any withdrawals from the account down the road.
With a Roth 401(k) account, contributions are included in your taxable income. As a result, you owe income tax on the amount you put in the account for the year the contribution is made. But after that, funds in the account grow on a tax-free basis and no income tax is due when you take money out of the account in retirement.
In addition, you might also qualify for a tax credit of up to $1,000 ($2,000 for married couples filing a joint tax return) for putting money into either a traditional or Roth 401(k) account. However, this credit—commonly called the Saver’s Credit—is only available to low- and moderate-income individuals. So, to claim the credit, your federal adjusted gross income must be at or below a certain amount, which is based on your filing status.
YATI Tip: Starting in 2024, required minimum distributions (RMDs) were no longer required for Roth 401(k) accounts.
Related: IRA Contribution Limits for 2025
Early Withdrawal Penalties
There are restrictions on when you can withdraw money from a 401(k) account, and a 10% early withdrawal penalty if you take money out of your account too soon.
With a traditional 401(k) account, you might have to pay the penalty if you withdraw money from the account before you turn 59½ years old. And, with a Roth 401(k) account, you could be hit with the penalty if you withdraw earnings before reaching 59½ years of age.
There are various exceptions to the early withdrawal penalty, though. For instance, you can withdraw funds from a 401(k) plan before you turn 59½ to pay certain medical expenses. You can also avoid the penalty if you lose or leave a job after the year you turn 55 and pull money out of that company’s 401(k) plan. Other exceptions might also apply.
Related: 12 States That Tax Social Security Benefits
401(k) Contribution Limits for 2025
The inflation rate has been moderating, but the 401(k) contribution limit’s bump from 2024 to 2025 was the same as it was from 2023 to 2024.
For 2025, employees under 50 years old can contribute $23,500 to one or more 401(k) plans. That’s an increase of $500 from the $23,000 cap for 2024.
Workers who are at least 50 years old can put an additional $7,500 in their 401(k) plans for 2025—for a total of $31,000. This extra amount is called a “catch-up” contribution, and it remains the same from 2024 ($7,500, for a total of $30,500).
However, there is a change this year that improves catch-up contributions for some employees. Workers ages 60 to 63 actually enjoy a higher catch-up contribution limit of $11,250, for a total of $34,750.
Cap on Employer Contributions
As an extra benefit, some companies offer an employer match with their 401(k) plan. In other words, in addition to whatever you put in your 401(k) account, the company will also put money in your account.
However, there’s also a cap on the amount an employer can contribute to your 401(k).
For 2025, employers can contribute up to $47,500 of additional funds to an employee’s account, or a combined total of $71,000 in employee and employer contributions for workers under 50. (The combined total limit is $78,500 for employees age 50 or older who make catch-up contributions, and $82,250 for employees ages 60-63 who make catch-up contributions.)
By comparison, in 2024, for an employee under age 50, the maximum an employer can contribute is $46,000. That comes to a total employee-and-employer contribution limit of $69,000. (The 2024 combined total for workers making catch-up contributions is $76,500.)
Note, however, that an employer can’t put in more than a worker’s annual compensation from the company.
Related: How Much Should I Contribute to My 401(k)?
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What to Do With Your 401(k) Plan After Leaving a Job
These days, few people stay with one company for their entire career. In fact, a lot of people switch jobs every few years. But whenever you do leave a job, there’s often questions about what to do with your old 401(k) account.
When you leave a job, you basically have four options:
- Keep the 401(k) account with your former employer
- Roll over the money in your 401(k) account into a traditional or Roth IRA
- Roll over the money to your new employer’s 401(k) plan
- Cash out your 401(k) and pay any taxes due
Which option is best for you depends on your own situation and goals. In other words, there’s no right way or wrong way … just the best way for you.
However, if at all possible, try to keep your money invested and growing in one way or another. Unless you absolutely need the money right away, cashing out an old 401(k) is often a risky move because you’re probably going to need that money in retirement.
If you’re not sure which option is best for you, meet with a financial advisor to discuss your options and what might be best for your situation.
Need Help Rolling Over a 401(k) Account to an IRA?
Rolling over a 401(k) plan to an IRA is a very popular option. If you need help with this type of rollover, Capitalize offers an easy way to move your old 401(k) by helping you to choose an IRA and handling all the paperwork on your behalf—for free.
A rollover through a service like Capitalize will move your money into your own account, allowing you to easily keep track of your assets through a new IRA opened with brokerages like Charles Schwab, Betterment, and Vanguard.
Visit Capitalize to learn more about how to roll over old 401(k) plans for free.
- Use Capitalize to rollover your old 401(k) plan for free
- The company handles all of the hard work by coordinating with your old 401(k) provider to process the transfer to a new IRA with brands you know like Vanguard, Betterment, Charles Schwab, and more
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