401(k) Contribution Limits

2025 employee deferral limit: $23,500 — adjusted annually for inflation Total limit (employee + employer): $70,000 in 2025 — includes all sources These limits apply across all 401(k) accounts if you have multiple employers Exceeding limits triggers penalties — excess deferrals must be corrected by April 15

Maximizing Your 401(k) Contributions

Employer Match and Vesting

A common match formula is 50% of contributions up to 6% of salary
Not contributing enough to get the full match is forgoing compensation
Vesting schedules determine when matched funds are fully yours — check your plan
Some plans match per paycheck, so front-loading contributions can cost you match dollars

Traditional vs Roth 401(k)

Traditional contributions reduce taxable income now but are taxed on withdrawal
Roth contributions are made after-tax but grow and are withdrawn tax-free
If you expect higher tax rates in retirement, Roth may be more advantageous
Splitting between both can provide tax diversification and flexibility later

Catch-Up Contributions and Super Catch-Up

Workers age 50 and older can contribute an additional $7,500 per year
SECURE 2.0 super catch-up: up to $11,250 for ages 60 to 63, effective 2025
High earners ($145,000+ in prior-year wages) must make catch-ups as Roth under SECURE 2.0
At age 64 you revert to the regular catch-up amount — the window is limited

After-Tax Contributions and Mega Backdoor Roth

Some plans allow after-tax contributions beyond the employee deferral limit
After-tax funds can convert to Roth via in-plan conversion or rollover to a Roth IRA
This mega backdoor Roth strategy can shelter up to $46,000+ more per year
Not all plans permit this — check for after-tax contributions and in-service withdrawals

Common 401(k) Mistakes to Avoid

Cashing out when changing jobs triggers taxes plus a 10% penalty if under 59 and a half
Defaulting into overly conservative funds when decades from retirement hurts growth
Ignoring asset allocation — target-date funds are one option but may not suit everyone
Not reviewing fees — high expense ratio funds erode returns significantly over time

Prioritization: 401(k) vs IRA vs HSA

Generally, contribute enough to get the full employer match first
HSAs offer triple tax benefits and can serve as a supplemental retirement account
IRAs provide more investment choices but have lower limits ($7,000 in 2025)
Auto-escalation increases your deferral rate 1 to 2% annually until a cap is reached
After maximizing match and HSA, consider maxing 401(k) before taxable accounts

401(k) Contribution Limits

Employer Match and Vesting

Traditional vs Roth 401(k)

Catch-Up Contributions and Super Catch-Up

After-Tax Contributions and Mega Backdoor Roth

Common 401(k) Mistakes to Avoid

Prioritization: 401(k) vs IRA vs HSA

Related Topics

457(b) Plans: Deferred Compensation for Executives

SECURE Act 2.0: Key Retirement Rule Changes

Spousal IRA Strategies: Maximize Retirement Savings on One Income

401(k) Contribution Limits

Employer Match and Vesting

Traditional vs Roth 401(k)

Catch-Up Contributions and Super Catch-Up

After-Tax Contributions and Mega Backdoor Roth

Common 401(k) Mistakes to Avoid

Prioritization: 401(k) vs IRA vs HSA

Related Topics

457(b) Plans: Deferred Compensation for Executives

SECURE Act 2.0: Key Retirement Rule Changes

Spousal IRA Strategies: Maximize Retirement Savings on One Income