You can put more into your 401(k) this year
Edward Jones - Chad Choate, AAMS
For more information about the author, click to view their website: Edward Jones
Feb 04, 2025
Florida - Sarasota, Bradenton & Charlotte Counties
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Once
you retire, you’ll likely need to draw on a variety of financial sources — and
one of the most important ones may be your 401(k). And for 2025, you can put
even more money into your plan than ever.
You
can invest in your 401(k) in one of two ways, depending on your employer’s
plan. With a traditional 401(k), you contribute pre-tax dollars, which can
lower your taxable income, and your money can grow tax deferred. If you have a
Roth 401(k) option, you can contribute after-tax dollars, which aren’t
deductible, but your eventual withdrawals will be tax-free if you’ve had your
account at least five years and you’re at least 59½.
For
either a traditional or Roth 401(k), as well as similar plans such as a 457(b)
(for government employees) or a 403(b) (for educators and employees of some
nonprofit groups), the contribution limit has increased by $500 for 2025, to
$23,500. If you're 50 or older, you can contribute an additional $7,500, for a
total of $31,000. And under the SECURE 2.0 legislation, if you are between 60
and 63, you have a higher catch-up contribution — $11,250, instead of $7,500,
for a total of $34,750.
If
you can afford to contribute the full amount to your 401(k) or similar plan,
consider doing so. Of course, not everyone is in that position. If you’re a
younger worker, you may well have other financial obligations, such as paying
off student loans. And even if you’ve been in the workforce for a while, you
may be putting away money for other things — such as your children’s education
— as well as your own retirement. But even if you can’t “max out” on your
401(k), try to contribute at least enough to earn your employer’s matching
contribution, if one is offered.
Regardless
of how much you contribute to your 401(k), consider these suggestions on
managing the money within your plan:
•
Create a portfolio that fits your risk tolerance. Most 401(k) plans
offer up to a dozen investment options, while some plans offer many more. You
obviously want to increase your 401(k) balance as much as possible, but that
doesn’t necessarily mean putting all your 401(k) dollars into the most
aggressive funds available. Instead, consider spreading your 401(k)
contributions among a range of investments, which can help you lower your risk
level while still giving you opportunities for long-term growth. Everyone’s
risk tolerance is different, though, so you’ll want to evaluate yours when
constructing your 401(k) portfolio.
•
Adjust your portfolio as needed. It’s a good idea to review your 401(k)’s
investment mix at least once a year to see if it’s performing as you’d hoped. But
be patient — one “down” year doesn’t necessarily mean you must make changes.
However, as you approach retirement, you may want to lower the risk level of
your 401(k) by moving some of your dollars into more conservative vehicles.
Still, even when you’re retired and have started drawing money from your
401(k), you might want to keep some growth potential in it to help you stay
ahead of inflation.
By contributing what you can afford to your
401(k), and by carefully managing the investments within your plan, you can
help maximize the value of this powerful retirement savings vehicle — and give
yourself a key asset to help you enjoy your retirement years.
Chad Choate III, AAMS
828 3rd Avenue West
Bradenton, FL 34205
941-462-2445
[email protected]
This article was written by Edward
Jones for use by your local Edward Jones Financial Advisor.
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