Funding Tax-Sheltered Accounts Before the Year Ends

As another calendar year comes to a close, it’s easy to get caught up in the rush of holidays, travel, family gatherings, and other end-of-year obligations. But before December 31 rolls around, it’s worth taking a closer look at your retirement accounts. Whether you’re running a small business or planning your own household finances, making timely contributions to your tax-sheltered accounts could impact both your long-term savings and your short-term tax liability.

At iWealth, we believe financial planning isn’t about guessing what markets will do next; it’s about staying disciplined, making wise, intentional choices, and aligning your actions with your goals. Year-end contributions are one of those high-impact steps that can keep your financial plan on track, which we’ll discuss in more detail.

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Understanding Tax-Sheltered Accounts

Tax-sheltered accounts are designed to help you save for the future while receiving tax incentives along the way. Whether you’re contributing to a 401(k), SIMPLE IRA, SEP IRA, or Traditional IRA, each plan follows specific funding rules, and those rules can make a big difference at the end of the year.

For example:

• Employer-sponsored plans, such as 401(k)s and SIMPLE IRAs, often have year-end contribution deadlines.
• IRAs and SEP IRAs, on the other hand, typically allow you to make contributions up until the tax filing deadline in the following year.

iWealth Tip: That extra flexibility is helpful, but waiting can sometimes mean missing out on months of potential growth. Time in the market matters far more than trying to time the market.

2025 Contribution Limits

Here’s a breakdown of the 2025 contribution limits for several types of tax-advantaged retirement accounts, along with key catch-up rules and special provisions you’ll want to keep in mind. Consider partnering with a team of experienced financial advisors in Minnesota who can help you craft a retirement plan and investment strategy to include these options: 

1. 401(k) (including 403(b) and governmental 457 plans)

• The employee elective deferral (contribution from salary) limit for 2025 is $23,500.
• For participants age 50 and older, the “standard” catch-up contribution remains at $7,500 for 2025.
• Under the SECURE 2.0 Act, there is a “super” catch-up provision for those aged 60-63 in 2025, allowing a higher catch-up contribution of $11,250 in specific plans.
• For self-employed or business owner plans (e.g., solo 401(k) / one-participant 401(k)), total employer and employee contributions can reach up to $70,000 in 2025 (or 25% of compensation, whichever is less) for individuals under 50. 

2. SIMPLE IRA (Savings Incentive Match Plan for Employees)

• For 2025, the employee elective deferral limit is $16,500 for those under age 50.
• The catch-up contribution for those age 50 and older is $3,500 for 2025.
• For certain SIMPLE plans (those meeting specific criteria under SECURE 2.0), participants aged 60-63 may have access to a special higher “super” catch-up of $5,250 in 2025. 

3. Traditional IRA & Roth IRA

• For both Traditional and Roth IRAs, the combined contribution limit for 2025 is $7,000 for individuals under age 50.
• For those age 50 or older, the limit is $8,000 (i.e., $7,000 + $1,000 catch-up) in 2025.
• Note: For Traditional IRAs, whether the contribution is tax-deductible depends on whether you have a workplace retirement plan and your income covers you (or your spouse). For Roth IRAs, eligibility to contribute (and the amount that can be contributed) phases out based on Modified Adjusted Gross Income (MAGI). 

4. SEP IRA (Simplified Employee Pension)

• For 2025, employer contributions to a SEP IRA are limited to the lesser of 25% of eligible compensation or $70,000.
• The eligible compensation base used for the percentage is capped (for 2025) at $350,000 in many cases.
• Unlike Traditional or Roth IRAs, SEP IRAs do not allow for an individual “catch-up” contribution for age 50+ in the same way that employee deferral plans do. 

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The Case for Contributing Early

Even if your IRA or SEP IRA deadline extends into next year, there’s a strong case for making your contributions sooner rather than later. The months between January and April can deliver significant market movement. 

If your money is still sitting in cash during that time, you may lose this opportunity to improve your investment returns. 

Let’s look at a hypothetical example. Suppose you contribute $6,000 to your IRA on April 15. If the market rose by 5% between January and April, you’ve already missed out on some potential appreciation. That’s because January is frequently the best-performing month of the year. 

Over years of investing, those missed gains can compound into thousands of dollars.

Deadlines vary based on the type of account you use. Here’s a quick refresher:

iWealth Tip: We refer to this example as an “opportunity cost.” You can’t control market performance, but you can control when your money starts working for you. By funding earlier, you give your investments more time to compound and stay aligned with your long-term strategy. Consider working with a Minnesota financial planner to review your financial situation. 

Understanding How Roth IRAs Work

A Roth IRA offers one of the most flexible and tax-efficient ways to save for retirement. You contribute after-tax dollars, allowing your future earnings and qualified withdrawals to grow tax-free and be withdrawn tax-free when you are retired. This structure can be especially advantageous if you anticipate being in a similar or higher tax bracket after you retire. 

Also, unlike traditional IRAs, Roth IRAs don’t require minimum distributions (RMDs), and you can access your original contributions anytime without penalty.

To contribute, you must have earned income (or a working spouse, in the case of a spousal IRA), and eligibility is based on your Modified Adjusted Gross Income (MAGI). 

In 2025, individuals under 50 can contribute up to $7,000, while those 50 and older can contribute up to $8,000, which includes a $1,000 catch-up contribution. These limits apply to your combined IRA contributions, including both traditional and Roth contributions.

Income phase-outs apply: for single filers, eligibility begins to phase out around $150,000 of MAGI and ends near $165,000; for married couples filing jointly, the range runs from about $236,000 to $246,000. If your income exceeds these limits, a backdoor Roth conversion may be an option.

Looking forward to 2026, the IRS hasn’t finalized new contribution limits, but small increases may occur due to inflation adjustments. The current $7,000 and $8,000 limits will likely serve as the baseline. Phase-out ranges should also be slightly higher. 

Additionally, beginning in 2026, certain high-income earners in workplace plans (like 401(k)s) will be required to make catch-up contributions as Roth (after-tax) contributions under the SECURE 2.0 Act.

iWealth Tip: A Roth IRA can be a powerful tool for long-term tax diversification. By contributing now with after-tax dollars, you gain flexibility and potentially decades of tax-free growth. If you qualify under the 2025 income limits, contributing early and consistently, especially before tax rates potentially rise in the future, can be one of the most valuable moves you make for your retirement plan.

Need assistance with your year-end tax planning efforts? Connect with us.