Maximizing your 401(k) plan in 2025 with increased limits and larger catch-up contributions.

• A CNBC poll conducted by SurveyMonkey reveals that about 40% of Americans are not adequately prepared for retirement savings.
• Starting in 2025, older workers can increase their 401(k) contributions with higher deferral limits and catch-up contributions.
• Some plans include a "true-up" feature that enables employees to maximize their plan early without forfeiting any of their employer match.

To increase your savings for retirement, you may be missing out on ways to optimize your 401(k) plan, particularly for the upcoming changes in 2025.

A CNBC poll conducted by SurveyMonkey found that about 40% of Americans are not adequately prepared for retirement savings, based on a sample of 6,657 U.S. adults in August.

It is recommended to review one's financial situation, including income, immediate spending needs, and goals before making any changes to a 401(k) plan.

In 2025, five personal finance advisors will provide valuable advice on managing your money. If you overspent during the holiday season, here are some tips to prevent a repeat in the future. On average, investors are saving more into their 401(k)s.

Salim Boutagy, a certified financial planner and partner at Moneco Advisors in Fairfield, Connecticut, stated that 401(k) investing should be aimed at long-term retirement goals. However, it should be combined with other savings that cover midterm goals, emergencies, and immediate spending needs.

To optimize your retirement savings, it's crucial to understand the essential aspects of your 401(k) plan for 2025.

Use higher 401(k) contribution limits as a 'prompt'

In 2025, employees can contribute up to $23,500 into their 401(k) plans, an increase from $23,000 in 2024. However, the catch-up contribution limit for investors aged 50 and above remains at $7,500.

"Boosting savings rate is a prompt for everyone, not just high earners, as stated by CFP Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida," said Ulin.

Compound growth over time can result in a substantial difference with even 1% yearly increases, according to him.

According to Fidelity Investments, the estimated retirement plan savings rate for the third quarter of 2024, including employee deferrals and company contributions, was 14.1% as of Sept. 30, based on an analysis of 26,000 corporate plans.

Leverage the 401(k) 'super max catch-up'

In 2025, some older investors will have a new "super max catch-up" opportunity on top of the higher 401(k) deferral limits, according to CFP Dinon Hughes, a financial consultant based in the greater Boston area with Nvest Financial.

In 2025, individuals aged 60 to 63 will have a catch-up contribution limit of $11,250, resulting in a total deferral cap of $34,750.

Nearly 14% of employees maxed out their 401(k) plans in 2023, according to Vanguard's 2024 How America Saves report, based on data from 1,500 qualified plans and nearly five million participants.

However, there is "one major caveat," Hughes said.

If your 401(k) does not allow increased catch-up contributions, payroll may flag any added funds as excess deferrals, which could result in tax consequences if not removed.

Don't wait until the end of 2025 to face a significant issue with your employer; address it now to avoid a larger problem.

Check for 'true up' before maxing out early

If you max out your 401(k) early, you may lose part of your employer's matching contribution, but experts suggest investing sooner to increase compound growth over time.

To receive your full employer match for the year, you must defer a certain percentage of income from each paycheck.

Some 401(k) plans provide a "true-up" deposit for employees who fully contribute before the end of the year.

Contributing aggressively in January is a green light if your plan includes this feature, as Ulin stated.

In 2023, the Plan Sponsor Council of America's survey found that 67.4% of plans that did not have annual true-up matches still made matches. This feature is most commonly found in larger plans.