By: Sean Gallagher, CFP®
As 2025 approaches, significant updates to employer-sponsored retirement plans are set to impact how employees can save for retirement. These changes, including increased contribution limits and enhanced catch-up provisions, offer new opportunities to maximize tax-advantaged savings.
Increased Contribution Limits for 2025
The IRS has announced an increase in the annual contribution limit for employer-sponsored retirement plans, such as 401(k), 403(b), and most 457 plans. For 2025, employees can contribute up to $23,500, up from $23,000 in 2024.
This higher limit allows employees to allocate more of their income toward their pre-tax or Roth (post-tax) retirement accounts, helping to accelerate savings and potentially reduce taxable income.
Enhanced Catch-Up Contributions for Ages 60–63
One of the most notable changes for 2025 is the new catch-up contribution rule for employees aged 60 through 63. Under the SECURE Act 2.0, these individuals can contribute considerably more than the standard catch-up limit of $7,500.
For this age group, the catch-up limit will rise to $11,250, bringing their total allowable contribution to $34,750 for the year (base contribution of $23,500 + $11,250 catch-up). This provision is designed to help those nearing retirement boost their savings during their highest-earning years.
The IRS defines eligibility for this group as turning 60-63 by the end of the calendar year. Once participants turn 64, they revert to the standard catch-up limit.
It’s important to note that the catch-up increase feature is optional for employers to add to their retirement plans, so employees should check with their employers to confirm eligibility. In addition, beginning in 2026, catch-up contributions for high earners (defined as those earning $145,000 or more) will need to be made on a Roth basis unless legislative changes occur. Employees in this income bracket should plan accordingly to take advantage of this provision.
Planning Considerations for Employer Retirement Plans
These updates provide an excellent opportunity to revisit your retirement savings strategy, particularly if you’re approaching retirement age. Here are some key considerations:
Maximize Contributions Early in the Year:
If cash flow allows, consider contributing the maximum amount early in the year to take advantage of compounding returns and employer-matching contributions.Plan for Catch-Up Contributions:
Employees aged 50 or older should incorporate catch-up contributions into their savings strategy. If you fall into the 60–63 age range, start planning now for the enhanced limit in 2025 to maximize your savings during this window.Review Employer Match Policies:
Ensure you’re contributing enough to maximize any employer match—this is essentially “free money” for your retirement. With higher contribution limits, you may need to adjust your percentage allocation to capture the full match.
The 2025 updates to employer retirement plans create exciting opportunities to enhance your savings strategy. If you have questions about how these updates apply to your situation, contact your HIGHLAND team or your employer’s benefits team for guidance.
Sean Gallagher is a CERTIFIED FINANCIAL PLANNER™ at HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Sean graduated from Virginia Tech’s financial planning program in 2018 and successfully passed the CFP® national exam in 2019. As a Financial Planner at HIGHLAND Financial Advisors, Sean works on developing comprehensive financial plans and investment management for all clients.