IRS Update: Increased Contribution Limits for 401(k) Plans in 2025
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, reflecting adjustments for inflation.
Annual Contribution Limits
For 2025, the annual contribution limit for 401(k) plans will rise by $500, from the current limit of $23,000 in 2024 to $23,500. This increase will also apply to several other retirement plans, including 403(b) retirement plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.
IRA Contribution Limits Remain Steady
While the IRS adjusts contribution limits for retirement plans, it will maintain the annual contribution limits for Individual Retirement Accounts (IRAs), including traditional and Roth IRAs, at $7,000 from 2024 to 2025. The catch-up contribution limit for individuals aged 50 and older will remain at $1,000 for the 2025 tax year.
Catch-Up Contribution Limits for Older Workers
For employees aged 50 and above enrolled in most retirement plans, including 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan, the catch-up contribution limit will stay at $7,500 for 2025. Additionally, workers aged 60 to 63 will benefit from a higher catch-up contribution limit of $11,250, as established by the SECURE 2.0 Act of 2022.
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Adjustments to Traditional IRA Tax Deduction Thresholds
The IRS has also revised the income thresholds for taxpayers contributing to traditional IRAs and seeking tax deductions. For individual taxpayers covered by a workplace retirement plan, the tax deduction phase-out range will now be between $79,000 and $89,000, an increase from the previous range of $77,000 to $87,000. For married couples filing jointly, the phase-out range will rise to between $126,000 and $146,000, up $3,000 from last year.
Changes to Roth IRA Income Phase-Out Ranges
The income phase-out range for contributions to Roth IRAs has also increased. For individuals and heads of households, the new range is between $150,000 and $165,000, up from the previous range of $146,000 to $161,000. For married couples filing jointly, the phase-out range will rise by $6,000 to between $236,000 and $246,000.
Saver’s Credit for Low- and Moderate-Income Workers
The Saver’s Credit, officially known as the Retirement Savings Contributions Credit, remains set at $39,500 for individual taxpayers, $79,000 for married couples filing jointly, and $59,250 for heads of household. This credit is aimed at encouraging low- and moderate-income workers to save for retirement.
These adjustments by the IRS aim to help individuals maximize their retirement savings in response to ongoing inflationary pressures.
