Strategies to Boost Your Retirement Funds Rapidly
Boosting Retirement Savings: A Guide to 401(k), Roth 401(k), and Roth IRA Contribution Limits in 2025
As we navigate the complexities of retirement planning, understanding the contribution limits and advantages of various savings accounts is essential. Here's a breakdown of the key features and limits for 401(k), Roth 401(k), and Roth IRA accounts in 2025.
401(k) and Roth 401(k) Plans
Individuals aged 50 and older can make additional catch-up contributions beyond the standard employee limit of $23,500. The standard catch-up amount is $7,500, making the total possible contribution $31,000 for those aged 50 and above. Under the SECURE 2.0 Act, people aged 60 to 63 are eligible for an even larger "super catch-up" contribution of $11,250, raising their total contribution limit to $34,750 in 2025.
Catch-up contributions for Roth 401(k) work similarly to traditional 401(k)s but are made with after-tax dollars; withdrawals are tax-free if conditions are met (age 59½ and the account held for at least five years). Importantly, you can contribute to a Roth 401(k) regardless of income level.
| Plan Type | Standard Limit 2025 | Catch-up Age | Catch-up Amount | Super Catch-up Age | Super Catch-up Amount | |-----------|--------------------|--------------|-----------------|--------------------|----------------------| | 401(k)/Roth 401(k) | $23,500 | 50+ | $7,500 | 60-63 | $11,250 |
Roth IRA
For Roth IRA, the maximum contribution is $7,000 for individuals under 50 and $8,000 (including a $1,000 catch-up) for those 50 and older. However, eligibility to contribute to a Roth IRA is subject to income limits based on Modified Adjusted Gross Income (MAGI):
- For single filers: Full contribution allowed if MAGI is under $150,000; contributions phase out between $150,000 and $165,000; no contributions allowed above $165,000.
- For married couples filing jointly: Full contribution allowed if MAGI is under $236,000; phase-out between $236,000 and $246,000; no contributions allowed above $246,000.
| Plan Type | Standard Limit 2025 | Catch-up Age | Catch-up Amount | Income Limits (Roth IRA) | |-----------|--------------------|--------------|-----------------|-------------------------------------------| | Roth IRA | $7,000 (<50) / $8,000 (≥50) | N/A | N/A | Single: $150k-165k phaseout; no contribution >$165k. Married joint: $236k-246k phaseout; no contribution >$246k |
Taxable Accounts
Taxable brokerage accounts do not have early-withdrawal penalties and do not have annual investment limits. Municipal bonds and municipal bond funds are good choices for taxable accounts due to their potential for federal and state tax exemptions. Actively traded mutual funds that throw off a lot of taxable capital gains distributions are better suited for tax-advantaged accounts.
Roth 401(k) and the Mega Backdoor Roth IRA
Participation in a solo 401(k) plan is limited to the business owner (and in some instances, his or her spouse), so the anti-discrimination rules don't apply. After-tax contributions to a 401(k) can be converted to a Roth IRA or Roth 401(k) with a strategy known as the "mega backdoor Roth IRA." This strategy offers tax-free growth and withdrawals, and no Required Minimum Distributions (RMDs) are required. However, the mega backdoor Roth IRA has been in the political crosshairs due to its potential for tax sheltering, but no initiatives have been enacted into law.
Long-Term Capital Gains Tax Rates
Gains on investments in a taxable account held for more than a year qualify for a lower long-term capital gains rate. For 2025, long-term capital gains tax rates are 0%, 15%, or 20%, based on taxable income and filing status.
Consulting with a certified financial planner is recommended for determining the suitability of the mega backdoor Roth strategy and for creating a comprehensive retirement plan.
Considering the tax implications of various retirement accounts and investments, it's worth noting that after-tax contributions to a 401(k) can be utilized to establish a Roth 401(k) through a strategy known as the "mega backdoor Roth IRA." This strategy offers tax-free growth and withdrawals, and unlike a Roth IRA, it doesn't have income restrictions (finance). Furthermore, for those who have maxed out their contribution limits for traditional retirement accounts, a taxable brokerage account could serve as an option for further investing, though it doesn't offer the tax advantages of retirement accounts (personal-finance).
