It’s more than just an eighties synth-rock anthem—we all have deadlines. Your grade-school teacher expected assignments on time, your boss needs something before close of business, and your beloved cruise ship is totally fine departing without you.
Likewise, if you’re an investor, then New Year’s Eve is a critical date if you wish to optimize your 401(k) contributions. And while next December may feel far off, January offers the perfect opportunity to kick-start your 401(k) strategy and stay ahead all year long. So, whether your contributions are lagging, on track, or aiming to maximize every tax-advantaged penny, now’s the time to dial in on your strategy.
Here’s my countdown of key ideas on the topic:
8. Why the Deadline Matters
“Better three hours too soon than a minute too late.” – William Shakespeare (playwright)
For 401(k) retirement savings plans, December 31 is the cutoff date for contributions to count toward the limit for a given tax year. In 2025, the contribution limit is $23,500 if you’re under age 50, or $31,000 if you’re over 50 and eligible for catch-up contributions.1 However, thanks to the SECURE Act 2.0, participants aged 60 to 63 can take advantage of an increased catch-up limit of $11,250 instead of $7,500.2 These limits include both traditional (pre-tax) and Roth 401(k) contributions, so please be sure to account for any employer matches when calculating your total (but more on that in a minute).
Missing this deadline can mean losing out on valuable tax benefits. Pre-tax retirement plan contributions reduce your taxable income for the year, potentially lowering your personal income tax bracket.3 Roth contributions grow tax-free and can provide tax-free withdrawals during retirement (if IRS conditions are met).4
7. Check Your Progress
“You can’t get where you’re going if you don’t know where you are.” – Henry Kissinger (statesman)
Likewise, you’ll need to check your current baseline by logging into your 401(k) account and reviewing your contributions to date. Many plans provide a year-to-date summary, making it easy to see how much you’ve contributed and how close you are to this year’s limit. If you’re not on pace, most employers will let you update your contribution rate through the HR portal or payroll system. Act quickly, though—recent changes often don’t kick in until after one or two pay periods.
6. Consider a Catch-Up Sprint
“Act as if what you do makes a difference. It does.” – William James (philosopher)
If you have seasonal income or fell behind on contributions last year, early in the year is a great time to adjust your strategy and plan for any other expected payouts, such as a mid-year bonus. Temporarily increasing your deferral percentage can help you make up for lost time. Just be mindful of your household’s cash flow needs.
For high-income earners, maximizing your 401(k) can also help you stay under certain tax thresholds. For example, contributing pre-tax dollars may reduce exposure to the Medicare surtax or phaseouts on deductions and credits. The Medicare surtax is an extra tax on high incomes over certain limits,5 and phaseouts gradually reduce tax breaks and credits as your income climbs higher.6 That said, please consult a qualified tax professional to evaluate your individual situation.
5. Trad vs. Roth Contributions
“Flexibility is the key to stability.” – John Wooden (basketball coach)
If you have access to both traditional and Roth 401(k) options, take a moment to revisit your allocation. For DIY investors already managing taxable brokerage accounts, a Roth 401(k) might provide extra diversification. As mentioned before, its tax-free withdrawals can complement taxable and tax-deferred accounts in retirement, giving you more flexibility when withdrawing in retirement.
On the other hand, if you’re in a high tax bracket this year and expect to be in a lower one during retirement, traditional contributions might still be the better choice. Run the numbers, and if you’re unsure, consider consulting a qualified financial professional.
4. Employer Matching? Take it!
“Take what you can, give nothing back.” – Capt. Jack Sparrow (movie character)
While most pirate mantras don’t fly in the civilized workplace, this one is absolutely true when it comes to employer matching. One of the golden rules of 401(k) investing is to take the full employer match, if offered, since matches are essentially free money. However, they’re still contingent on you contributing enough to qualify7. Double-check your plan’s requirements to ensure you’ve done your part. Even a small shortfall could mean missing out on hundreds or thousands of dollars in match contributions.8
3. Better This Time
“Start where you are. Use what you have. Do what you can.” – Arthur Ashe (tennis star)
If you didn’t maximize your contributions last year, don’t worry. Now is the perfect time to focus on this year’s 401(k) strategy. Review your deferral rate to account for salary increases or financial changes. If you receive a windfall, consider putting part of it toward your 401(k). For those looking to get ahead, hitting the annual contribution limit early lets you sit back and let compounding work its magic.
2. Solo 401(k) Are A Two-Way Street
“‘Freelance’ means I can take watermelon breaks and no one can yell at me.” – Mandy Ashcraft (freelance writer)
Fortunately, freestyle snacking isn’t the only perk of being your own boss. If you’re self-employed, don’t forget that Solo 401(k) contributions have an (advantageously) different structure. While employee deferrals (by you) still need to be made on or before December 31, employer contributions (also you, but in a different role) can often be made up until the tax filing deadline, typically April 15 (or later if you file for an extension).9 You can use this flexibility to optimize your total contributions based on the profitability of your one-person business.
1. Don’t Let the Deadline Slip By
“We’re leaving together, but still it’s farewell.” – Europe (Swedish rock band)
As an experienced investor, you know the value of staying proactive. The December 31 deadline for 401(k) contributions may feel distant, but starting now gives you plenty of time to reduce your tax bill, grow your retirement savings, and set yourself up for success. So, please invest some of your precious time and schedule an afternoon to review your account, make necessary adjustments, and set yourself up for a stress-free December. By planning ahead, you’ll be ready to ring in 2026 without regrets. Your future self is rooting for you.
Disclaimers
This article is for informational purposes only and does not constitute investment, tax, or legal advice. All investments involve risks, including the possible loss of principal. Consult a qualified tax professional or financial advisor for personalized advice.
References:
- Internal Revenue Service (IRS). “401(k) Limit Increases to $23,500 for 2025, IRA Limit Remains $7,000.” November 4, 2024. https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000.
- IRS. “Notice 2024-80: Cost-of-Living Adjustments for Retirement Plans.” November 2024. https://www.irs.gov/pub/irs-drop/n-24-80.pdf.
- IRS. “Maximize Your Salary Deferrals.” Accessed January 18, 2025. https://www.irs.gov/retirement-plans/maximize-your-salary-deferrals.
- IRS. “Roth Account in Your Retirement Plan.” Accessed January 18, 2025. https://www.irs.gov/retirement-plans/roth-acct-in-your-retirement-plan
- IRS. Questions and Answers for the Additional Medicare Tax. Accessed January 18, 2025. https://www.irs.gov/newsroom/questions-and-answers-for-the-additional-medicare-tax
- IRS. Retirement Topics – IRA Contribution Limits. Accessed January 18, 2025. https://www.irs.gov/retirement-plans/ira-deduction-limits
- Rafal, Julia Kagan. “How 401(k) Matching Works.” Investopedia. Last modified August 5, 2023. https://www.investopedia.com/articles/personal-finance/112315/how-401k-matching-works.asp
- Herron, James. “I’m Blindsided by IRMAA. How Do I Avoid These Extra Medicare Charges?” MarketWatch. Last modified September 30, 2024. https://www.marketwatch.com/story/im-blindsided-by-irmaa-how-do-i-avoid-these-extra-medicare-charges-19e15c66
- IRS. “One-Participant 401(k) Plans.” Accessed January 18, 2025. https://www.irs.gov/retirement-plans/one-participant-401k-plans