From catch-up contributions to smart strategies for beginners, here’s how to grow your 401(k) faster and smarter in 2025.
Transcript:
BOB POWELL: So I think one of the biggest changes that people need to think about is what’s called catch up contributions. So in 2025, you can contribute 23,500 to your 401k. And for people who are 50 and older, you can contribute an additional 7500. 500, but there’s something called the super catch up contribution. For those people who are age 60 to 63. They can contribute an additional $11,250 to their 401k. And what we know is that oftentimes people in this age group, they they are in a position where maybe they have paid down the mortgage on their house. Maybe they have paid for their children’s college education. And given those expenses in the past, they weren’t able to contribute as much to their 401k as they might have wanted to, but now they don’t have those obligations. They can now contribute more to the 401k. So if you’re in that age group 50 and older, and especially if you’re 60 to 63, you should consider taking advantage of the catch up. The other thing that would be important for people who are a little bit younger is if your employer offers it, there’s now an opportunity for people in their 20s and 30s who have student loans to pay down their student loans, and then have their employer contribute as if it was a matching contribution to a 401k into a 401k on your behalf. So it’s a great way to. On the one hand, pay down your student debt, but also start saving for retirement. Not every employer offers this opportunity, so if yours doesn’t, I would march down to your hr employee benefit department and ask your employer to institute the plan where they would have matching contributions on your student loan payments.
I think there’s – in terms of tips for 401s, I think there are a couple of things to consider. One is if you’re in your 20s and 30s and you don’t know much about investing, it’s likely that you’ve been opted into what’s called a target date fund. And a target date fund is a perfect kind of fund for someone who is a novice at investing. It’s a fund that offers you tremendous diversification across stocks and bonds and cash and international stocks and et cetera so it’s a great way to get used to this notion of investing and learn about investing as you get older and perhaps you become a little bit more sophisticated, I want you to think about investing in a different way. Maybe start investing in ETFs, low cost ETFs, ETFs that manage and look at a broad index of funds. Maybe it’s an S&P 500. Maybe it’s a Russell 2000 or 3000. Look at broad ETFs for bond funds. And then create a portfolio that’s designed for your risk tolerance, your time horizon and your investment objective. And I’d say ultimately if you’re investing in a 401k, those are the best places to start thinking about. Like, how do I become a prudent investor? I want to do this in a way that allows me to reach my goals. The other thing is to think about because for many people in their 20s and 30s who are just starting out, it’s really hard to imagine a retirement that might be 40 years away. And so one of the things that you might want to do, especially when someone says, how much do I need to invest to fund my retirement, is to look at benchmarks, and there are a number of companies that offer benchmarks. Some will say you need to have one times your annual salary set aside in a 401k. By age 30, and that by the time you’re age 65, you should have 10 to 12 times your average annual salary set aside at age 65. So use those benchmarks as you go, as a way to say if you’re on target. And the last thing I’ll mention about the best tip I think that people can have is aim to save somewhere around 15% of your salary per annum as you’re saving for retirement, and that could include your company match. So, for instance, many people start saving at 6% and they get a 3% match from their company. They’re at 9% But every time you get a raise, increase the amount you’re saving so that ultimately over time, you’re saving 15% of your compensation.
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