The end of the year is the time to start thinking about whether you want to make changes to one of your retirement accounts for 2025.
The IRS just raised how much money you can put into your 401k plan. You will be able to contribute up to $23,500.
That is $500 more than last year.
“This year, you can contribute up to 23,000 that’s of your own personal contribution. If you’re closer to retirement age, I believe it’s age 50 and up, you can do an additional $7500. Now that doesn’t limit what your employer can contribute,” said Harry Drozdowski, Wells Fargo Wealth Planning Strategist.
Many businesses have 401k matching programs.
Some will match 50 cents for every dollar, or even dollar for dollar that you save.
“For a traditional 401k, you don’t pay any taxes when the money goes in and it gets to grow free of income taxes until you pull the money out. So that’s the federal government saying, look, go out there, build the best retirement funds you can for yourself,” Drozdowski added.
People often underestimate how much money they will need in retirement. According to Vanguard, most people spend between 75% and 85% of their current income each year once they retire.
It is recommended between 12% and 15% of your salary go into a retirement fund every year. For example, if you are earning $50,000 a year, ideally you should be putting between $6,000 and $7,500 a year into a tax-deferred account like a Roth IRA or a 401k.
