Clearwater Capital’s Comprehensive Retirement Strategies

IRS Announces New Retirement Plan Contribution Limits for 2025

As we step into 2025, it’s an excellent time to revisit and refine your retirement strategy. Staying informed about annual adjustments to retirement account contribution limits and tax thresholds ensures you’re making the most of every opportunity to secure your financial future.

Maximizing contributions to qualified retirement plans is one of the most effective strategies for securing a strong financial future. These plans, including 401(k)s, IRAs, and similar accounts, offer significant tax advantages that can enhance an investor's ability to save for retirement. Contributions to traditional accounts are often made with pre-tax dollars, reducing taxable income and deferring taxes until withdrawals are made in retirement. In the case of Roth accounts, while contributions are made after taxes, the benefit lies in the tax-free growth and withdrawals during retirement.

Taking full advantage of these limits allows investors to harness the power of compounding growth. By contributing more today, investors provide their savings with a longer time horizon to grow, which can significantly amplify the value of their nest egg by the time they retire. This compounding effect is especially impactful when contributions are maximized consistently over time, even more so when employer-matching contributions are part of the equation. Employer matches, often linked to employee contributions, effectively provide “free money” that boosts overall retirement savings.

Another reason to prioritize maximizing contributions is to ensure that savings keep pace with inflation. Over time, the rising cost of living can erode purchasing power, making it crucial to save enough to preserve your lifestyle in retirement. By contributing to the IRS limits, investors can better position themselves to counteract this effect and safeguard their financial independence.

For those closer to retirement, the ability to make catch-up contributions is a critical opportunity. Beginning at age 50, investors are allowed to contribute additional amounts beyond the standard limits, providing a way to accelerate savings if they started later or need to bolster their retirement accounts. This flexibility ensures that even late savers have a chance to prepare adequately for the future.

Failing to maximize contributions can mean leaving money on the table—not just in terms of employer matches, but also in lost growth potential. Since IRS limits reset annually, any unused allowances cannot be carried forward, making it important to take full advantage of each year's opportunities.

Moreover, qualified retirement plans can serve as powerful tools in estate planning. Assets within these accounts can often be transferred to beneficiaries with favorable tax treatment, helping to create a lasting financial legacy.

Ultimately, contributing the maximum to retirement plans demonstrates financial discipline and aligns your savings strategy with your long-term goals. It is a proactive way to ensure that you’re not only prepared for retirement but also making the most of the tax-advantaged opportunities available to you. By doing so, you position yourself for a secure and fulfilling retirement, free from financial stress.

Increased Contribution Limits for 2025

To account for inflation, the IRS has raised the annual contribution limits for 401(k) and similar retirement plans. For 2025, the limit increases to $23,500, up from $23,000 in 2024. This adjustment applies to 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan.

Additionally, individuals aged 50 and over can take advantage of catch-up contributions, allowing them to contribute up to $31,000 annually to these plans under provisions of the SECURE 2.0 Act. For those aged 60–63, the law introduces a higher catch-up contribution limit of $11,250, providing a significant opportunity to boost retirement savings during peak earning years.

IRA Contribution Updates

While the annual contribution limit for traditional and Roth IRAs remains unchanged at $7,000 (with an additional $1,000 catch-up contribution for those 50+), the IRS has adjusted income thresholds for deduction and contribution eligibility: 

For traditional IRAs, the tax deduction phase-out range for workplace retirement plan participants has increased to $79,000–$89,000 for individuals and $126,000–$146,000 for married couples filing jointly. 

Roth IRA income phase-out ranges now stand at $150,000–$165,000 for individuals and heads of household, and $236,000–$246,000 for married couples filing jointly. 

For more information on retirement contributions, reference our full write-up by Kevin Nolte HERE.

A Call to Action

Annual IRS adjustments like these, underscore the importance of proactive financial planning. By maximizing your contributions and leveraging tax-advantaged opportunities, you can make significant strides toward achieving your retirement goals.

Clearwater Capital is your partner in helping you prepare for retirement, offering personalized expertise to ensure financial security and peace of mind in later years. The process begins with a deep understanding of each client’s unique circumstances, including their desired lifestyle, expected retirement age, healthcare needs, and legacy aspirations. Our advisors use this information to estimate the amount required to achieve these goals and to develop a comprehensive strategy tailored to the client’s needs.

One of the primary ways we support retirement planning is by creating a customized savings plan. We evaluate various retirement account options, such as 401(k)s, IRAs, or Roth IRAs, and provide guidance on how much to contribute annually to maximize growth potential. For those approaching retirement, we emphasize the importance of catch-up contributions and other strategies to make the most of available tax-advantaged savings opportunities.

Investment management is another critical area where we can help. Our investment policy team can design diversified portfolios that align with your time horizon and risk tolerance, making adjustments as retirement approaches to focus on preserving wealth while maintaining opportunities for growth. Regular portfolio monitoring and rebalancing ensure that investments remain aligned with the client’s evolving goals and market conditions.

Tax efficiency is a cornerstone of retirement planning, and we are skilled at navigating the complexities of tax laws to minimize liabilities and maximize the benefits of tax-advantaged accounts. We can help you choose between traditional and Roth accounts, depending on current and projected tax brackets, and advise on withdrawal strategies that preserve wealth and maintain a steady income during retirement.

Healthcare and long-term care expenses are another essential consideration, as these costs can significantly impact retirement savings. We can help you anticipate these expenses, by exploring options like health savings accounts (HSAs) and long-term care insurance to ensure that medical costs are accounted for within the broader retirement plan.

Generating sustainable income during retirement is a vital aspect of the planning process. Our team develops comprehensive withdrawal strategies that balance immediate needs with long-term financial security. Our modeling incorporates factors such as Social Security benefits, required minimum distributions (RMDs), and other income sources to create a reliable income stream throughout retirement.

In addition to planning for your retirement, we often address estate and legacy goals. Our collaboration with estate planning professionals helps you align financial and legal strategies, ensuring that wealth can be transferred to future generations efficiently and in accordance with your wishes. This might involve establishing trusts, designating beneficiaries, or implementing other wealth transfer tools.

Retirement planning is a dynamic process that requires ongoing attention. Clearwater Capital Partners provides continuous support, reviewing and adjusting plans as life circumstances, tax laws, and market conditions evolve. By remaining proactive, we can help you ensure that your retirement strategy stays on track, even as new challenges and opportunities arise.

Through a combination of expert guidance, personalized planning, and long-term support, we empower individuals to approach retirement with confidence. Our comprehensive approach allows our clients to enjoy the financial freedom and lifestyle they envision in their golden years.

James Chapman, AWMA

Chief Innovation Officer

Senior Wealth Advisor

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