Guide to Optimize Retirement Plan Contributions
Most people wait until the deadline to contribute to retirement accounts. That’s better than nothing—but it’s not a plan. Optimizing your retirement contributions means deciding how much to contribute, where to put it, and when to make it based on your tax situation, cash flow, and long-term goals.
Here’s how to think about it like a planner.
1. Choose the Right Accounts for Your Income Level
Each retirement account has pros and cons. The right one depends on your income, tax rate, and whether you’re a business owner or employee.
Traditional 401(k): Contributions reduce your taxable income now. Withdrawals are taxed in retirement. This is a good fit if you're a high earner and want current tax savings.
Roth 401(k): You contribute after-tax, but withdrawals are tax-free later. Ideal if you're in a lower tax bracket now or want to build future tax-free income.
Traditional IRA: Contributions may be deductible, depending on income and access to a workplace plan. Works well if you don’t have a 401(k) or fall under income limits.
Roth IRA: No upfront deduction, but tax-free growth and withdrawals. Good for long-term savers under the income phaseouts.
SEP IRA / Solo 401(k): Higher contribution limits. Designed for self-employed individuals or small business owners who want to lower their business tax liability and save aggressively.
If your income varies year to year, consider splitting contributions between Roth and traditional to give yourself flexibility down the road.
2. Max Out Strategically
Here are the 2025 contribution limits:
401(k): $23,000 (+$7,500 catch-up if over age 50)
IRA or Roth IRA: $7,000 (+$1,000 catch-up if over age 50)
SEP IRA: Up to 25% of compensation, max $69,000
Solo 401(k): Up to $69,000 combined employee and employer contribution
HSA (if eligible): $4,150 individual / $8,300 family
Automating monthly contributions helps smooth out cash flow and makes maxing out more manageable.
3. Reduce Your Tax Bill with Contributions
Pretax contributions lower your taxable income today. That could:
Drop you into a lower tax bracket
Keep you under Medicare IRMAA thresholds
Preserve ACA subsidies
Roth contributions don’t help with this year’s tax bill, but they’re valuable for long-term flexibility and future tax-free income.
4. Business Owners: Don’t Wait Until December
If you’re self-employed or own a business, timing matters.
Solo 401(k)s must be established by December 31 to count for 2025
Contributions can be made up to your tax filing deadline
SEP IRAs can be opened and funded later, but they lack Roth options and employee deferral features
Employer contributions are a business deduction—another lever to manage your income and tax burden
Plan now so you’re not scrambling at year-end.
5. Don’t Forget Asset Location
Where you put investments matters as much as how much you contribute.
Use brokerage accounts for stocks you’ll hold long-term and sell strategically
Use Roth accounts for high-growth, long-term investments you want to grow tax-free
Use pretax accounts for bond funds or other income-generating assets that would otherwise get taxed annually
This improves after-tax returns without changing your overall strategy.
Most people set their contributions once and never revisit them. That’s fine if nothing changes—but income, taxes, and goals usually do.
Now’s a good time to check if your current setup still makes sense. You might be missing tax savings, leaving room in your plan, or putting money in the wrong account type.
If you want to make smarter moves with your retirement savings this year, let’s review it together.
