'It's A Lot, But Worth It': Suze Orman On How Pre-Retirees Can Max Out Their 401(k) Savings Due To New Contribution Rules

Personal finance expert Suze Orman urges pre-retirees to take advantage of significant new opportunities to boost their 401(k) savings. Updated contribution rules will take effect in 2025, allowing workers aged 60 to 63 to save more than ever. 

Higher Contribution Limits for 2025

The IRS announced that starting in 2025, workers aged 50 and older can make a standard catch-up contribution of $7,500 in addition to the regular 401(k) contribution limit of $23,500. This brings the total annual contribution limit to $31,000 for those 50 and older.

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However, the big news applies to workers aged 60 to 63. Instead of the standard $7,500 catch-up limit, this group will be eligible to contribute up to $11,250 in catch-up contributions. Combined with the regular limit, their annual total rises to $34,750.

“This can give a serious boost to your retirement security,” Orman writes in her December blog, emphasizing that the enhanced limits provide a rare opportunity to supercharge savings as retirement approaches.

The Value of Saving More

In her blog, Orman explains that maximizing your contributions can yield great long-term benefits. For example, she illustrates that contributing $31,000 for three consecutive years could grow to $102,000, assuming a 5% annual growth rate. Over the next 10 years, however, that number could grow to $165,000; in 20 years, it could exceed $270,000. 

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For those aged 60 to 63, the potential for even higher contributions offers greater growth opportunities.

“I know it's a lot,” Orman acknowledges, “but rethinking your spending might help you find the money to save more in your 401(k).”

Traditional vs. Roth Contributions

The new rules also offer greater flexibility in how contributions are made. Starting in 2025, workers can allocate their catch-up contributions to either traditional 401(k)s or Roth 401(k)s.

Orman strongly advocates for Roth accounts, which are funded with after-tax dollars. While traditional 401(k) contributions reduce taxable income now, they are taxed upon withdrawal in retirement. Roth accounts, on the other hand, allow retirees to withdraw funds tax-free.

“The chance to build up tax-free savings now is especially important if you have already done decades of savings in a traditional retirement account,” Orman advises. She also points out that starting in 2026, high-income earners must make catch-up contributions to Roth accounts.

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Making the Most of the Changes

Orman's message to retirees and pre-retirees is clear: these new limits can change the game. Maximizing contributions, particularly in Roth accounts, allows workers to take full advantage of tax-free growth. 

Saving roughly $35,000 a year may seem daunting, so Orman encourages individuals to examine their spending habits and prioritize retirement savings to take advantage of these extra savings opportunities. 

The upcoming 401(k) changes offer a chance to significantly bolster retirement savings. Understanding and leveraging these new limits could be the key to long-term financial security for workers approaching retirement age.

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