Maxing Out Your Retirement Contribution Limit

Maxing out your retirement contributions can feel like a financial milestone, but it might also leave you wondering: What happens next? Let’s break down what maxing out your contribution limit means, how it happens, and what steps you can take to keep your retirement savings on track.

What Does It Mean to Max Out Your Contributions?

The IRS sets annual limits on how much you can contribute to retirement accounts like 401(k)s, 403(b)s, and IRAs. Here are the limits for 2025 [1]:

• 401(k), 403(b), and similar workplace plans: You can contribute up to $23,500.

• Catch-up contributions for ages 50 and older: Add an extra $7,500, bringing your total annual contribution to $31,000.

• Special catch-up for ages 60–63: Those in this age range can contribute an additional $11,250, increasing their savings potential.

• IRAs: The annual contribution limit remains $7,000, with an extra $1,000 allowed for those aged 50 and older.

How Does Maxing Out Happen?

Maxing out your contributions typically occurs through automatic payroll deductions or manual deposits. If you’re saving aggressively, it’s important to monitor your contributions regularly to avoid exceeding the limit.

What Happens If You Max Out Early?

While maxing out early shows a strong commitment to saving, it could leave you without contributions later in the year. Some employers match contributions per paycheck rather than on an annual basis, meaning you might miss out on part of their match if you stop contributing mid-year.

Solution: Adjust your contribution rate to spread it evenly across the year to maximize employer matching.

What Can You Do After Maxing Out?

If you’ve hit the limit but still have funds to save, consider these options:

Contribute to a Roth IRA

• Contributions are after-tax, but qualified withdrawals in retirement are tax-free.

Open a Taxable Investment Account

• Invest in stocks, bonds, or mutual funds outside of retirement accounts.

• While these accounts don’t offer tax benefits, they provide flexibility for withdrawals.

Boost Your Emergency Fund

• Plan to have at least 3–6 months’ worth of expenses saved for unexpected situations.

Pay Down High-Interest Debt

• Reducing debt can free up cash for future savings and lower your financial stress.

Look into Health Savings Accounts (HSAs)

• If you have a high-deductible health plan, an HSA offers tax advantages and can act as an additional savings vehicle for retirement healthcare expenses.

Keep Your Savings Momentum Going

Maxing out your retirement contributions is a great achievement, but it doesn’t mean you have to stop saving. By exploring alternative savings options and managing your contributions strategically, you can stay on track for a financially secure retirement.

Have questions? Our team of retirement experts are happy to speak with you. Feel free to reach out at any time to set up a one-on-one meeting.

The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.

Source:

[1] 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000. Internal Revenue Service. (2024, November 1). https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000