In 2025, this guidance suggests the optimal amount you ought to save in your 401(k).
Retirement planning is shifting in 2025, making it an appropriate moment to examine your retirement funds and ensure they're on the right track. These modifications, part of the Secure Act 2.0, which was approved in 2022, aim to improve retirement savings prospects and make things simpler for individuals with high savings rates.
A 401(k) plan is one of the finest methods to prepare for retirement, especially if your employer offers matching contributions. The IRS has boosted the contribution limits for 401(k) plans in 2025 to $23,500, a rise from $23,000 in 2024. This offers you additional space to save tax-advantaged funds. With these new limits, how much should you aim to contribute this year?
Adhere to the 10-15% rule
Financial advisors suggest saving 10-15% of your gross income for retirement. For instance, if you earn $60,000 annually, you would want to save $6,000–$9,000 yearly. With the 2025 401(k) limit of $23,500, the 10% rule implies you'd need to earn a substantial income to approach that contribution limit. For example, if you make $80,000 per year, 10% of your income is $8,000. This amount is under the $23,500 contribution limit, enabling you to adhere to the 10% rule while maximizing the tax benefits of your 401(k).
Greater catch-up contributions for those nearing retirement
The other significant change occurring this year: Employees between the ages of 60–63 will have the option to make larger catch-up contributions to their 401(k) plans, with new limits of either $10,000 annually or 150% of the standard catch-up contribution limit—whichever number is greater.
The expansion of catch-up contribution limits presents a valuable chance for workers to enhance their retirement savings during their peak earning years. Over half of 401(k) participants with income above $150,000 and nearly 40% with an account balance of more than $250,000 made catch-up contributions in 2023, according to Vanguard’s 2024 How America Saves report.
Evaluate what you can afford
Examine your monthly net income and expenses. Identify where you can reduce costs and divert more funds toward retirement. Even minor savings, such as bringing lunch to work or canceling sacrificed subscriptions, can have an impact.
Ideally, aim to contribute at least enough to earn any matching funds from your employer. That's free money you don't want to forgo. If your employer matches up to 5% of income, then at the minimum, you should contribute that percentage.
Aim to increase your contribution by at least 1%
Unable to commit to 10% currently? That's perfectly fine and completely understandable. That figure is widely recognized in the personal finance world, but everyone's financial position is unique. To begin, start from your current position and think about boosting your contribution rate by just 1% this year. This minor adjustment will aid in growing your nest egg over time without requiring a significant lifestyle adjustment. And you can continue to do so each year until you achieve your target savings rate.
The main goal is to start saving as early as possible and be consistent. If you’re unsure of how much to aim for, consult with a financial advisor who can assist you in fine-tuning your savings strategy.
Considering the raised 401(k) contribution limit in 2025 to $23,500, you might wonder, "How much should I aim to contribute this year to take advantage of the new limit?" Additionally, monitoring your income and expenses can help you determine, "What percentage of my gross income can I allocate towards my 401(k) contribution to reach the 10-15% savings recommendation, without exceeding the annual limit?"
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