The 401(k) contribution limit for employees in 2025 has increased to $23,500, up from $23,000 in 2024. The employer contribution limit also rises to $46,500, bringing the combined employee and employer 401(k) contribution limit to $70,000 for 2025.
Don’t underestimate the power of employer 401(k) contributions, especially as you advance in your career. As you gain seniority, you might find that employer profit-sharing or matching contributions become more significant. In strong years, some companies increase their profit-sharing contributions to reward employees. The year I left Credit Suisse, for instance, I received a $22,000 match/profit-sharing contribution on top of my maximum 401(k) contribution.
For employees ages 50 and older, the catch-up contribution limit remains at $7,500, unchanged from 2024. However, starting in 2025, employees aged 60 to 63 will benefit from an increased catch-up contribution limit of $11,250, rather than the standard $7,500, providing additional support for those approaching retirement.
Contributing to your tax-advantaged retirement accounts is just one leg of the new three-legged retirement stool. The other two legs are building up taxable retirement accounts and cultivating your “X factor“—a unique source of potential income or value outside of traditional investments.
With pensions now rare for most employees and Social Security projected to be underfunded by 25%, it’s smart to view Social Security as a bonus rather than a guarantee.
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Your Goal: Max Out Your 401(k) Every Year
If there’s one essential move every employee should make, it’s to strive to max out their 401(k) contributions each year. Since contributions are made with pre-tax income, maxing out your 401(k) is more manageable than it may seem. Plus, by making it automatic from each paycheck, you’ll quickly adapt to living within your means.
After just 10 years of consistent contributions, you’ll likely be surprised by your balance. Beyond your own contributions, you’re often growing your account with employer matches and investment returns, which can add up significantly.
If you’re earning over $70,000 annually, maxing out your 401(k) should be a priority. You’ll still have about $46,500 in taxable income to cover your living expenses. And if you’re making $100,000 or more, there’s little excuse not to maximize this benefit. You’re in at least the 22% federal marginal tax bracket and earning enough to live comfortably. Make sure you’re setting yourself up for a stronger retirement.
For those earning under $70,000, hitting the annual 401(k) max in 2025 may feel challenging but can still be doable, especially for incomes above $40,000. A lot depends on your budget and lifestyle.
Living with family rent-free? You may even be able to max out both your 401(k) and a Roth IRA, adding another $7,000 to your retirement. Just make sure to help around the house—those savings come with some extra duties!
Most Employees Are Far From Maxing Out Their 401(k) Plans
Although we know we should be taking full advantage of tax-advantaged retirement accounts, most don't. According to Vanguard data, only 14% of employees maxed out their 401(k)s in 2023. And if these employees aren't maxing out your 401(k)s, I suspect they aren't actively building a taxable investment portfolio either.
Meanwhile, according to survey data from Northwestern Mutual, the magic number for a comfortable retirement surged to $1.46 million, up 15% over the $1.27 million reported in 2023. In 2020, the target number they reported was just $951,000.
There's a clear disconnect between how much people are saving for retirement and how much they believe they'll need once they retire. Fortunately, Social Security still provides benefits for eligible Americans, though it may not be enough on its own. For those who aren’t aggressively saving, the reality is that they’re likely planning to work longer to bridge the gap.
The Next Step After Contributing To A 401(k): Grow Your Taxable Investments
After maxing out your 401(k), the next step is to grow your taxable investment portfolio as large as possible. Consider your 401(k) as your retirement foundation; everything else builds on top of it. This taxable portfolio includes your brokerage account, real estate investments, venture capital, business equity, and other alternative investments.
In the worst case, by age 60, you’ll likely have at least $1 million in your 401(k) to support your retirement. In the best case, you’ll have millions in both your 401(k) and taxable investments. If you grow your taxable portfolio significantly, it may generate enough passive income for an earlier retirement.
As a financial freedom fighter, your mission, if you choose to accept it, is to max out your 401(k) each year and then build a taxable investment portfolio equal to 3X your 401(k) balance. Achieve this, and by age 50, you should have the option to retire early or pivot to a lower-paying, more fulfilling career if you choose.
Base Case Taxable Investment Portfolio Goal
Here’s a base case retirement savings chart I created to help visualize how much you might accumulate over time. By age 30, aim to have a taxable investment portfolio equal to your 401(k) balance. As your income grows, ideally, you can allocate even more toward taxable investments, given the 401(k) contribution limits.
Once you surpass the $100,000 investment threshold, compounding really kicks in. For example, if you had $1 million invested in the S&P 500 in 2024, it would have grown by over $250,000, showcasing the impact of market growth on larger sums.
Take Full Advantage Of 2025 401(k) Catch-up Contributions
If you're not hitting these investment milestones by age, don't panic. Instead, focus on building a robust savings and investment plan to get yourself back on track.
For those over 50, remember you can contribute an extra $7,500 in catch-up contributions to your 401(k) or 403(b) in 2025. And if you’re between 60 and 63, that catch-up contribution increases to $11,250, for a total of $34,750. Not bad, especially if you’re financially comfortable and able to let those funds grow untouched.
You may even want to talk to a financial professional, like I did when I was 35. If you're lagging on your retirement savings, it might be time to ease up on the YOLO lifestyle—while it’s fun now, you may regret the spending once work is no longer an option.
Think of Your 401(k) as Retirement Insurance, Not A Main Source
Though contributing to your 401(k) feels like locking up your hard-earned money for decades, try to view it as a form of retirement insurance. This includes your Solo 401(k), 403(b), Thrift Savings Plan, SEP IRA, IRA, and Roth IRA.
Once you start treating maxing out these contributions as non-negotiable, with any returns as a bonus, you'll be better able to focus on building wealth beyond these accounts. Frankly, I don’t know any high-net-worth individuals who rely solely on a large 401(k) to fund their retirement—none.
Instead, they invest aggressively outside of their 401(k), as their income has long surpassed contribution limits, pushing them to find other ways to grow wealth. So, if maxing out your 401(k) feels like a stretch, the priority should be increasing your income and reducing expenses.
Finding Income for 401(k) Contributions
A year after I left finance in 2012, I took on part-time consulting roles at Personal Capital and other fintech startups from 2013-2015. Having maxed out my 401(k) since my first full-time job in 2000, it felt odd not to be contributing pre-tax dollars at age 35. As Financial Samurai has grown, I've also contributed to our SEP IRA plan as much as possible.
Once my baseline contributions were covered, I focused my efforts on building a robust taxable portfolio, investing heavily in San Francisco physical real estate, private real estate in the Sunbelt, venture debt, and venture capital. These investments offer both potential capital appreciation and passive income.
Though I had considered easing up on taxable portfolio growth once I turned 45 in 2022, purchasing a new home in 2023 and the re-election of Trump reignited my motivation to keep growing wealth. At this stage, finding balance between my financial goals and family time is key. I know if I spend too much time trying to make more money I will inevitably become miserable.
At 47, I’m beginning to see a small glow on the horizon where I'll eventually access my Solo 401(k), rollover IRA, and SEP IRA. However, after 37 years of growing these accounts, I imagine the greater challenge will be actually withdrawing from them. We’ll see when the time comes.
Diversify Your Investments Beyond Your 401(k)
If you’re looking to diversify your investments beyond your 401(k), check out Fundrise. Fundrise manages over $3 billion in private real estate investments, with a primary focus on the Sunbelt region, where valuations are generally lower and yields tend to be higher.
As the Fed enters a multi-year cycle of interest rate cuts and with Trump as president, real estate demand may increase in the coming years. Given Trump’s background and success in real estate, I wouldn’t be surprised if he introduces buyer incentives and policies to support heartland regions, which were key in his election victory.
I’ve personally invested over $270,000 with Fundrise, and they are a long-time sponsor of Financial Samurai.
2025 401(k) Contributions is a Financial Samurai original post. Join 60,000+ others and sign up for my free weekly newsletter.
Great post as always, Sam.
I’ve got a question about my situation. Currently gross about 75k and have an employer 457 plan that matches a portion of my contribution up to 3%. However, we have no latitude in allocating the funds into different investments – everyone gets the safest fund available, which returned just a hair over 3% last year. In a situation where a HYSA outpaces that return of the 457, why would I have any incentive to contribute above the employer match? I’ve been throwing additional cash into a Roth IRA and self-directed brokerage, both of which are far outperforming the employer-sponsored account.
Hi Austin – I’ve never heard of an employer forcing its employees to only invest in one option. Fascinating! At least the chances of losing money are low.
With a $75K gross income, you are just in the 22% federal marginal income tax bracket, which is quite reasonable. Hence, I would probably diversify and invest at least up to the employer match, and contribute to a Roth IRA and invest more aggressively. But I don’t know your age or risk tolerance.
Check out: Maximizing Tax-Free Income And Withdrawals In Retirement
52-years old. 1.2M in tax deferred accounts. 1M home (paid off). Maxing out 403b at 61K (including catch-up). Projected 260K in pensions. Deciding between adding a 457b (Roth or tax deferred) vs after tax investments. Would like to get some Roth exposure considering the pensions will fill up the lower tax brackets in retirement. Considering withdrawals can be made at 59.5, not sure after tax investments make much sense with the pensions.
It’s great to see the maximize levels going up each year. Even though I didn’t max out my 401k when I first had access to one, I worked my way up and am thankful for the years I did. It takes a proactive mindset and willingness to plan for the future, which isn’t always easy or natural when youth is still on your side. But it’s definitely worth it because it ironically can get harder to save with age due to more responsibilities and more complexities in life.
Great article, Sam.
As I approach age 50 in 2025, I am excited to continue to max my Simple IRA ($16,500) as well as increase my contributions another $3500 to reach a total contribution of $20,000.
In addition to my Simple IRA, my taxable accounts include a real estate portfolio of 3 single family homes I hold as rental properties and a small office building I hold through an LLC, that I rent back to myself, as an office for my insurance business. As of August 2024, I had paid off the office building mortgage and own all 4 properties mortgage free. My daughters are all at the age where they have either entered the workforce or are in college, and all 3 work part or full time. I have shifted part of my financial plan to incorporate Roth IRAs for each of them as well. It’s been a fun ride, and I feel like my wife and I could feasibly walk from our jobs (she’s a teacher with a great pension) and be just fine if we chose to. We’ve worked hard and now I anticipate a very fun time of our lives as we enter our 50s and beyond. I’ve sure enjoyed being in this journey with you and I am so thankful to have found your site many years ago. Thank you Sam.
Jim
Re: After maxing out your 401(k), the next step is to grow your taxable investment portfolio as large as possible.
Before looking at your taxable investment portfolio, I would see if your employer allows for Roth 401k contributions. Mine does and I max it out with another $23k.
Great article, thank you Sam!
Just be careful… Traditional and Roth 401k have a combined contribution limit of $23k in 2024.
Mega back door into that mother…
Good post as usual, Sam! I have a employer 401k plan, which allows for a Mega backdoor 401k option. I know there are many variables in terms of age, how much one already has, target retirement date, etc…but from your instincts, after maxing out the pre-tax 401k portion of $23,500, would your focus be to build your taxable account or would you take advantage of the mega backdoor roth 401k option and max out a total contribution of $70k?
It makes sense given you’ll be investing in your brokerage anyway, with after tax money. You might as well invest in a mega backdoor Roth 401k so you don’t have to pay any taxes on future capital gains.
And if you are under the 24% marginal, federal income tax bracket, then it is really a great idea.
What would your reasons be not to?
Early retirement is my goal. 45 yrs old now and 3 kids will be in college <10yrs from now, thus I’d like to pull the trigger to retire then or sooner. Based on current tax laws, I’d likely have the option for using the Rule of 55 and/or pull money from taxable accounts to meet expenses at that time. Plus, based on our spending habits, we will be able to meet all expense needs within 15% long term capital gain limits as a married couple. The only variable in this equation is the element of time and the potential decision to retire before age 55, 60 at the latest and thus I’m toggling between whether to continue maxing out the mega backdoor 401k, or to simply contribute to the pre-tax limit of $23,500 and then investing the rest into taxable accounts for increased flexibility of timing options.
529
I would consider considering maxing out the mega back door 401k. Check to see if your plan allows after tax contributions as well—-and if your plan offers in plan conversions of after tax contributions to a Roth 401 k in your plan.
I understand the positive aspects of building up taxable accounts and the flexibility it may bring, but I would opt on maxing out the 401k——preferably for me a Roth 401k and the making after tax contributions with an in plan conversion to a Roth 401 k.
That way if you are over 50 you can put in approximately 70k plus a year in Roth money.
In terms of flexibility, I think that this approach provides it because you will be able to roll out the Roth portion of your 401(k) to Roth IRA and then draw on it as you can withdraw your initial contributions in a Roth at anytime and also make other withdrawals at 59 1/2.
I would Appreciate anybody’s thoughts on this; and please don’t hesitate to let me know what the potential drawbacks are that I might be missing. I would appreciate it any thoughts if I might be making a wrong decision.
I’m not sure why you left out traditional IRA limits, but they are also unchanged:
“The limit on annual contributions to an IRA remains $7,000. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2025.”
https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000
No problem. It’s because I was focused on the 401(k) contribution limits. Not everybody can contribute to a traditional IRA, including myself.
Are there other things I am missing you think I should add to this post? How is your 401(k) Building doing?
I’m mostly retired so that’s all I can do, apparently(?). Truth is, figuring out the different retirement account’s legal requirements makes my head hurt so I typically avoid it and just plod along (I don’t think I qualify for anything else).
For better or worse, most of my wealth is in taxable accounts (~$30M) but I have ~$2M+ in various retirement accounts and am over age 50.
That said, I certainly agree with your emphasis on tax-advantaged accounts and encourage young people to sock away that maximum possible AND invest it ….
I had the first half right and contributed regularly, but I screwed up the second half in my youth because I had a lot more fear when I was younger and sat out a lot of market gains because of all the “over-valued” talk that always permeate financial websites … thankfully I learned mid-way through to manage my fear (and greed) and, as a result, I have a big nest egg.
I want to say, I appreciate you and your friendly disposition when it comes to this stuff … I also feel like you may be going back to your roots a bit, and not promoting things as much as (I think) you did recently … anyway, thanks for being you, Sam.
Good stuff. I am impressed you still think about contributing to a traditional IRA with $30 million in taxable investments. What do you think you attribute this interest to?
Have you ever struggled with figuring out how to spend down your net worth in retirement? I’m fighting this difficult to do right now, but I’m trying my best. How do you plan to spend your fortune down, if at all?
Old habits are hard to break–even good ones, like saving in retirement accounts–which dovetails into your question about spending. The TDLR would be: I am a Psychology of Money guy, not a Die with Zero guy.
Hell, I even still do a little side-gig work for extra money. I don’t need it, of course, but I cannot help myself. Once a hustler, always a hustler (I use the term “hustler” in the best sense of the term, not in a dishonest way). For example, I’m teaching as an adjunct professor at a local university for ~$5K, I wrote a book that earned me ~$100K, I do some consulting for ~$10K, and odd jobs (like captaining a sailing vessel for tourists, for tips!).
In large part, I think having a scarcity mindset does this to a person–except I’d call it a “scarcity personality,” and a personality is damn near impossible to change.
I do love some of the ideas in Die with Zero about spending down wealth, like giving money to family while you’re alive, but I also do not want to even risk being a burden on my kids and also want them to learn valuable lessons that come from a reasonable amount of struggle.
Indeed, I used to say there’s “romance in the struggle,” but there’s more than that–there are many lessons to be learned in struggling to make your own way and not having everything handed to you, in feeling like you have to make life work. So, aside from education which I’ve always funded, I’ll probably focus on helping my kids more (like with a house) when they have established themselves a bit … which will surprise them since I’ve not promised anything like that.
On the other hand, there’s a saying among wealthy people: “you better fly first class, or your heirs will.” I’m not sure how I feel about that … in a literal sense, I have only flown first class once in my life (it was lovely) and even then I got a “good deal.” I’m also not sure it bothers me that my heirs will enjoy spending my wealth.
The wealth, in my mind, is security. It also buys time with my loved ones that I’d otherwise not have if I was still slogging away. What do I care if they ultimately use it frivolously or for their comfort? I’ll be dust in the wind.
So, my philosophy leans quite a bit towards maintaining wealth and independence rather than spending it all down to zero, but I do have some plans for making large gifts to my kids while I’m still above ground …
Can I ask how you amassed your $30M? Always curious how people with nothing end up with a lot…but it sounds like you hussled! My husband & I have not quite what you have but close & we have decided to buy a starter home for each of our 3 kids when the time comes AND they prove their hard work. The properties will be in our names. I do like flying first class though! Sorry….just saying…
Sam, there are 2 other schools of thought, one is to put only enough to get an employer match and use the rest of the money, after paying taxes, to invest in alternative investments. The second idea is to not put anything in your pre tax accounts, invest the money on your own, again, in alternative investments that pay a higher return that the S&P.
Sure, they can do whatever they want. From my perspective, I think it is a no-brainer to take full advantage of tax advantage retirement accounts. Use it as a retirement insurance policy, and focus on building much larger taxable investments.
I want to live my best life now or before the age of 60, not wait until then.
Sam, that makes sense. I’m doing alternate investments for my daughters but my investor friends think it’s crazy to max out their IRAs.
We were fortunate to have access to both a 403b AND a 457, for each of my wife and I. Our work also contributes 5% (pension offset) and we do another 3% to match that. Now that we’re over 50, that’s $31k * 4 accounts + $35k pension offset = $159k/yr, all pre-tax. Any married couple in the state of FL can do this (single would be about half). We’ve maxed out all our pre-tax accounts for a couple decades and now are well into the HNW bracket. I guess it’s time to retire soon!
It is often a challenge to figure out when to retire. If you love your job, then keep on going.
But I suspect you’ll end up with way more money than you need, so I would figure out how to spend and give more money away today.
sound advice! I don’t like my job, but it is so easy right now and not time-consuming, so I’ll stick it out a few more years. Indeed, we are ramping up our current spending, and increased our budget for the “go-go” and “slow-go” years in retirement, with a buffer for medical expenses in the “no-go” later years.
Is there a top limit amount that you would recommend people ease off the gas for 401k accounts? let’s say you want to leave money behind for your kids.
Given the contribution limits, I think a worker should keep maxing their 401(k)s out no matter what, then focus on building up their taxable investments to the max. Use that money to buy a house, pay for education, and other big ticket items.
You can leave your 401(k) money to your kids too. Here’s how it typically works:
Naming Beneficiaries: When you set up your 401(k), you can designate beneficiaries. If you pass away, your 401(k) funds go directly to the named beneficiaries, avoiding probate. You can name your kids individually or set up a trust as the beneficiary.
Spousal Consent: If you’re married, your spouse is generally entitled to be the primary beneficiary of your 401(k) unless they waive this right in writing. This step is essential if you want your children to receive your 401(k) funds directly.
Most non-spouse beneficiaries (including children) have to withdraw all funds within 10 years of the original account holder’s death.
This “10-year rule” offers flexibility, as beneficiaries can choose to take distributions at any time within those 10 years or wait until the end of the period.
Withdrawals are taxed as ordinary income, so timing the withdrawals can impact their tax situation.
Avoiding Taxes with Roth 401(k): If your 401(k) funds are in a Roth 401(k), distributions to your children would be tax-free if the account has been open for at least five years. They still have to withdraw the funds within 10 years but without the tax burden on withdrawals.
Consider a Trust: Setting up a trust as the beneficiary of your 401(k) can add control over distributions if you’re concerned about your kids handling a large inheritance. The trust can specify the timing and amount of distributions, which can be especially helpful for younger children.