Maximizing Employer 401(k) Contributions

Employer 401(k) plans offer the foundation of retirement savings but may not maximize the available deductions. This guide covers strategy beyond just hitting the employee deferral limit.

Contribution limits. For 2025, you can defer up to $23,500 of your salary into a traditional 401(k), reducing your taxable income dollar for dollar. If you are 50 or older, an additional $7,500 catch-up contribution brings the total to $31,000. SECURE 2.0 also introduced an enhanced catch-up of $11,250 for ages 60-63.

Check for mega backdoor Roth. Some employer plans allow after-tax contributions beyond the $23,500 elective deferral limit, up to the overall annual addition limit of $70,000 (2025). If your plan also permits in-plan Roth conversions, you can convert those after-tax contributions to Roth, sheltering significantly more money in a tax-free growth account. Not all plans offer this, and the rules are specific.

Roth vs. traditional. If you expect to be in a lower bracket in retirement, traditional 401(k) contributions save more now. If you expect sustained high income or want tax-free withdrawals, Roth 401(k) contributions (available in most plans) lock in today's rate.

The tradeoff: Your employer controls the plan design, investment options, and whether mega backdoor Roth is available. A CPA can help you maximize what your specific plan allows, but cannot create options your employer has not enabled.