The Internal Revenue Service (IRS) announced on Friday an increase in the contribution limits for 401(k) and other retirement plans for the 2025 tax year. The 401(k) plan’s annual contribution limit will rise by $500 to $23,500. This new limit applies to 403(b) retirement plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.
The IRS has maintained the catch-up contribution limit for employees aged 50 and up enrolled in most 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan at $7,500 for 2025. Under the SECURE 2.0 Act of 2022, workers aged 50 and older can contribute up to $31,000 annually to these retirement plans starting in 2025. The Act also introduced a higher catch-up contribution limit for workers aged 60 to 63, which will be increased to $11,250 in 2025.
For 2025, the annual contribution limit for traditional and Roth IRAs will remain at $7,000, with the catch-up contribution limit for individuals aged 50 and over holding steady at $1,000. Further adjustments have been made to the thresholds for tax deductions related to traditional IRA contributions. For individual taxpayers covered by a workplace retirement plan, the new deduction phase-out range is between $79,000 and $89,000.
Irs increases 401(k) contribution limits
For married couples filing jointly, this range has increased to between $126,000 and $146,000. The Roth IRA income phase-out range for individuals and heads of households has been increased to between $150,000 and $165,000, and for married couples filing jointly, it has been raised to between $236,000 and $246,000.
The IRS’s annual adjustments to contribution and eligibility thresholds are intended to account for inflation and maintain the effectiveness of these retirement savings vehicles. These changes will impact individuals saving for retirement, offering new opportunities for savers. With only a few months left in 2024, it’s crucial for individuals to ensure their contributions are as high as possible.
They should review their savings and expenses, and consult their company’s HR department to understand how much matching money is available. Adjusting portfolios to more affordable options can also help keep investment fees low, allowing more money to go directly into savings. Planning for the upcoming year is essential, and individuals should assess their entire portfolio, identifying areas that need attention.
They should review employer-matched accounts like 401(k)s to ensure they maximize the match available and allocate contributions throughout the year to make them more manageable. By taking these steps, individuals can better prepare for the upcoming changes in 2025 and optimize their retirement savings strategy.
