Saving for retirement not only helps build a nest egg for the future, but it can also reduce your taxes today. Contributions to retirement accounts like a 401(k) or traditional IRA can lower your tax bill, while contributions to a ROTH IRA set you up for tax-free money later. Here’s a simple guide to 2025 retirement savings options and how they can save you money, based on the latest tax rules:
- 401(k) or 403(b) Plans:
- You can save up to $23,000 in 2025 through your employer’s plan (like a 401(k) or 403(b)).
- If you’re 50 or older, you can add a $7,500 “catch-up” contribution.
- If you’re 60 to 63 in 2025, new rules under SECURE 2.0 allow you to save even more—up to $11,250 extra (instead of $7,500). That means you could put in as much as $34,250 if your employer allows it.
- If you work multiple jobs, ensure your total contributions across all employers don’t exceed these limits.
- Traditional or Roth IRAs:
- You can save up to $7,000 in an IRA, plus an extra $1,000 if you’re 50 or older, for a total of $8,000.
- You have until April 15, 2026 to contribute for 2025.
- If you earn too much, you might not qualify for a Roth IRA directly, but you can still use a “backdoor” Roth: put money into a Traditional IRA (no tax break on the contribution) and convert it to a Roth for tax-free growth later. This works best if you do not already have a big IRA balance—check with a tax pro to see if it’s right for you.
Why It Matters: Missing these deadlines means missing out on tax savings for 2025 as you cannot go back and make up contributions later. Choosing between Traditional and Roth accounts depends on your situation:
- Traditional: Lowers your taxes now by reducing your taxable income. This is ideal if you are in a high tax bracket today.
- Roth: While you will receive no immediate tax benefit, retirement withdrawals are tax-free. This is ideal if you expect to be in a higher tax bracket later.
Stay Organized: Track your contributions to avoid mistakes. Save your year-end pay stubs, IRA statements, and records of any contributions.
Big Picture: Retirement savings are a powerful tool for managing your taxes today and building wealth for tomorrow. Pair them with other moves—like donating to charity, converting part of a Traditional IRA to a Roth, or timing investment sales—to lower your 2025 tax bill. Start planning early to make the most of these opportunities.