In retirement planning, saving the maximum possible in retirement accounts such as a 401(k) or IRA is one of the most important long-term financial strategies. According to Scott Tominaga, by knowing the contribution limits in addition to scopes for ‘catch up’ contributions and adopting prudent tactics, individuals can optimize their retirement savings and secure their financial future in retirement. To know more, continue reading.
- Knowing Contribution Limits
Annually, the Internal Revenue Service (IRS) puts a limit on how much an individual can put into a 401(k) or an IRA. This contribution limit in 401(k) is set to $23,000 in 2025 while allowing people to contribute a catch-up extra of $7,500 for individuals aged 50 or above. However, IRAs have bench-marked the allowable contribution up to $6,500 with a ‘catch-up’ extra contribution of $1,000 for everyone in their 50’s. The set limits are subject to alteration every year, therefore it is important to remain updated with IRS rules to maintain one’s contributions within the allowed limits and try to maximize the contribution.
- Contribute to The Maximum Extent Every Year
According to Tominaga, one should try their best to contribute the maximum allowed amount every year. For 401(k)s, this can be effectively accomplished by setting an auto payment deduction with the aim of making the maximum contribution. In the case of IRAs, one can contribute regularly in continuation of the year or a lump sum toward the end of the tax filing period. Contributing to these accounts on a regular basis makes sure that a person is maximizing the advantage of tax-deferred growth, for both retirement funds.
- Leverage the Scope of Catch-Up Contributions
For those 50 and older, points out Scott Tominaga, the IRS provides catch-up contributions to speed up their retirement savings. This provision enables older employees to contribute more than the usual standard while taking the scope of catch-up contribution for that year when they might not have been able to contribute much. Catch-up contributions are a great option for those who might have begun saving later in life or who wish to save as much as possible as they are at the doorstep of retirement.
- Match Employer Contributions
For those who enjoy a 401(k) plan at their workplace, it is important to contribute as much as possible to any employer matching contributions. The majority of employers nowadays match contributions of employees up to a particular percentage point. In essence, it is an added benefit received from employers as “free” money.
- Utilize Both a 401(k) and an IRA Scheme
Maximizing contributions does not necessarily have to be done in one type of savings account. If it is possible, people should contribute to both the options including a 401(k) and an IRA. This way, they can secure the advantage of the benefits of both accounts, including tax-deferred growth in a 401(k) and the option to select investments in an IRA. However, it is worth noting that income limits might exist for contributions to an IRA, particularly for individuals who are under the coverage of employer-sponsored retirement plans.
Maxing out 401(k) or IRA contributions is an important step towards financial freedom in retirement. Contributing regularly and taking advantage of both account types whenever available means that one’s retirement is adequately funded and secure.
Kathie 
David Martinez