In my house, I have boys 9,7,4 - I still save clothes and things get passed down. Between my older two boys, the "saving" is more like getting moved from one drawer in one room to another drawer in another room as the 7 year old is getting really close to catching up with his brother. I do still save certain things from the 7 year old for the 4 year old, but certainly not everything. I save the same things you spoke about, the holiday specific items (even if it is a $5 T-shirt - I mean $5 is $5 after all -right?), nicer dress clothes that don't look as if they have even been worn, jeans that can be more expensive to buy, etc. I do save a few of the more worn out items as well - they become instant play clothes, and I save the "favorites".
I know that sounds like a lot of items, but that doesn't mean I save everything that falls into all of those categories. I am pretty selective. I have 2 big, plastic bins that I have "limited" my "saving" to - including shoes.
Having said all of that, I will say that we kept almost everything baby from our first child to our second child, but as they are only 2 years apart, by the time number 1 was 15 months, we knew number 2 was on the way. We moved 3 times between number 2 and 3 - and in that time gave away virtually all of the baby items - and so we had to start over with things for newborn to about size 3t. We had saved maybe 10-12 outfits across that size range of absolute favorite outfits - "just in case" there was a 3rd child later. So you may need to start saving only the favorites as you begin to run out of space. I suggest you decide HOW much space you want to dedicate to saving clothes and then make yourself stick to that amount of space - which means you may need to take some things out as you put other stuff in.
Good Luck,
T.