For years, 401(k) plans have been straightforward. You contributed up to the maximum, your employer likely matched a percentage, and that was about it. But today’s 401(k) landscape looks quite different, with new contribution options, changing rules, and more investment choices than ever before. 

How Much Should You Contribute to Your 401(k)? 

The foundational advice remains the same: always contribute enough to maximize your employer match. If your company matches 3%, contribute at least 3% to capture that free money. This should be your absolute minimum if you have the cash flow to support it. 

The 2025 contribution limit is $23,500 for most people. If you have surplus income after covering your essentials and emergency fund, working toward this maximum can significantly boost your retirement savings. 

New 401(k) Catch-Up Contribution Rules for 2025 

Catch-up contributions have become more nuanced. If you’re over 50, you can contribute an additional $7,500 beyond the standard limit. Now, if you’re between 60 and 63, you can contribute an extra $11,250, meaning people in that specific age bracket can contribute up to $34,750 total in 2025. 

Beyond the Basic Limits 

Many people assume $23,500 (plus catch-up contributions) represents their maximum possible contribution. However, if your employer offers after-tax contributions, you can potentially contribute up to $70,000 total per year. This option transforms your 401(k) into a much more powerful savings vehicle. 

If your current plan doesn’t offer after-tax contributions, you can request this feature from your employer. When they review the plan next, adding this option is typically a simple amendment. 

Roth vs. Pre-Tax Contributions 

The choice between Roth and traditional pre-tax contributions depends on your individual situation. While tax-free money in retirement sounds appealing (and it is!), pre-tax contributions offer one of the few ways to immediately lower your current tax bracket. 

Generally, younger workers in lower tax brackets benefit more from Roth contributions, while older, higher-earning workers often benefit from the immediate tax reduction of pre-tax contributions. A combination approach can also make sense. 

New 401(k) Rule for High Earners 

Starting in 2025, employer matching contributions for employees earning over $145,000 must go into a Roth 401(k). This creates an opportunity to balance your contributions; you might choose pre-tax contributions for yourself while your employer match goes into the Roth side. 

When to Make Your 401(k) Contributions  

Most people set a percentage and let it run automatically throughout the year. Once you hit the annual maximum, contributions stop automatically. But there can be advantages to taking a different approach. 

For example, higher earners often benefit from front-loading their contributions early in the year, which gives their money up to 12 additional months in the market compared to spreading contributions evenly. Over multiple years, this extra time can compound significantly. 

For others, especially those with tighter budgets, spreading contributions evenly throughout the year provides dollar-cost averaging benefits. This approach helps smooth out market volatility and makes budgeting more predictable. 

Automatic Enrollment Changes 

New legislation requires employers to offer retirement plans, and any new 401(k) plans must include automatic enrollment. Instead of opting in, employees are automatically enrolled at a 3% contribution rate that increases by 1% each year unless they opt out. 

This change affects both new employees joining companies with existing auto-enrollment and all employees when companies implement new 401(k) plans.  

Investment Options: Beyond the Basic Menu 

Traditionally, your investment choices were limited to whatever mutual funds, index funds, and target-date funds your plan administrator selected, typically around 30 options. While plan administrators have a fiduciary responsibility to offer suitable choices, these limited selections don’t always provide optimal diversification. 

Many plans now offer expanded investment access programs, giving you two additional options:  

• Self-directed investing: You can opt out of the standard plan investments and choose from a broader menu, often your plan provider’s retail investment lineup. While still somewhat limited, this menu is significantly larger than the basic 401(k) options. 
• Advisory access: You can work with a financial advisor with access to an even broader range of investments and implement more sophisticated strategies. The advisor manages your 401(k) investments without the restrictions placed on the standard plan options. 

If your plan doesn’t currently offer these expanded options, you can request that your employer add these features. We’re seeing this more frequently with larger companies, and smaller companies are beginning to adopt these options as well.  

Understanding the Costs 

When working with an advisor for your 401(k) investments, you’ll pay their advisory fee. However, advisors often have access to institutional pricing on investments, which can reduce the underlying investment costs. The goal is to ensure that any advisory fee is offset by lower investment expenses, a more comprehensive menu of investment options, and active portfolio management. 

Making the Right 401(k) Decisions for Your Financial Future 

The key to maximizing your 401(k) is understanding all your options and how they fit your specific situation. Start by capturing your full employer match, then consider how much more you can contribute based on your income and other financial goals. 

Take time to review whether Roth or traditional contributions make more sense for your current tax situation, and don’t forget to explore whether your plan offers expanded investment options that might better serve your long-term strategy. 

These changes make 401(k) planning more complex than it used to be, but they also create opportunities to significantly enhance your retirement savings when used strategically. 

This material is distributed for informational purposes only. Investment Advisory services offered through Journey Strategic Wealth, a registered investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). The views expressed are for informational purposes only and do not take into account any individual’s personal, financial, or tax considerations. Opinions expressed are subject to change without notice and are not intended as investment advice. Past performance is no guarantee of future results. Please see Journey Strategic Wealth’s Form ADV Part 2A and Form CRS for additional information.