As the year winds down, investors often focus on portfolio performance, tax strategies, and rebalancing. But there’s one area that deserves special attention before December 31 retirement contributions. Maximizing your IRA and 401(k) contributions can significantly strengthen your long-term financial security while trimming your current tax bill. Here’s why it matters and how to make the most of it.

Why Year-End Contributions Matter

Retirement accounts like IRAs and 401(k)s offer one of the most powerful ways to build wealth over time. The earlier and more consistently you contribute, the greater your compounding advantage. But just as important is taking full advantage of the annual contribution limits before the clock resets.

For 2025, the 401(k) contribution limit is $23,000 (or $30,500 if you’re age 50 or older). For IRAs, you can contribute up to $7,000, or $8,000 with the catch-up provision. Every dollar you add to these accounts grows tax-deferred or tax-free in a Roth account, allowing your savings to compound faster than in a regular investment account.

Missing out on these limits means missing an opportunity to invest more tax-efficiently and potentially lower your taxable income for the year.

Maximizing Employer Matching

One of the most common investor oversights is not contributing enough to capture an employer’s full 401(k) match. This is essentially free money, an instant return on your contribution that few other investments can match.

If your employer matches, say, 50% of your contributions up to 6% of your salary, make sure you’re contributing at least that 6%. Otherwise, you’re leaving part of your compensation unclaimed.

As you review your year-end finances, double-check your payroll contributions. If you’re below the match threshold, you may still have time to increase your deferral percentage before the year ends.

Traditional vs. Roth Contributions

Deciding between a traditional or Roth account depends on your tax situation now and what you expect it to be in retirement.

  • Traditional IRA/401(k): Contributions are made pre-tax, reducing your taxable income for the year. Taxes are paid when you withdraw funds in retirement.
  • Roth IRA/401(k): Contributions are made after-tax, but withdrawals in retirement are tax-free, including investment growth.

If you expect to be in a higher tax bracket later, Roth contributions can make sense. If you’re in your peak earning years and value a deduction now, the traditional route may be better. Many investors even split contributions between both to balance flexibility.

Catch-Up Contributions for Those 50+

If you’re 50 or older, the IRS gives you extra room to boost your savings through catch-up contributions. These allow an additional $7,500 for a 401(k) and $1,000 for an IRA beyond the standard limits.

For investors nearing retirement, these catch-up amounts can make a substantial difference, especially when compounded over the next decade.

Automate and Increase Over Time

Automation takes the guesswork out of saving. Setting up automatic contributions ensures you stay consistent and helps smooth out market volatility through dollar-cost averaging.

If you’re already contributing but not at the maximum, consider increasing your deferral percentage slightly each year; even 1% more can have a powerful cumulative effect over time.

Don’t Forget About Spousal IRAs

A couple sits together at a table, discussing their finances with a laptop open in front of them and coffee cups beside them. They appear engaged in conversation about retirement savings, including options like 401(k) plans and Roth IRAs, highlighting the importance of maximizing contributions for a secure financial future.

Even if one spouse doesn’t work, you may still be eligible to contribute to a spousal IRA based on the working spouse’s income. This is a valuable way for dual-income households or single-earner families to double their retirement savings potential.

The Bottom Line

As the year closes, reviewing your IRA and 401(k) contributions is one of the most impactful financial moves you can make. Whether your goal is to lower taxes, build wealth, or retire earlier, maximizing your contributions before December 31 ensures you’re taking full advantage of what the tax code offers.

Small, consistent decisions like increasing your contribution or capturing that full employer match can yield tremendous benefits over time. Take a few minutes to check your retirement savings strategy now so you can start the new year with confidence and momentum.