IRS Announces 401(K) Limit Increased to $23,500 for 2025, IRA Limit Remains at $7,000

Picture: Public DomainImages from Pixabay

November 4, 2024 – WASHINGTON — The Internal Revenue Service announced that the amount individuals can contribute to 401(k) plans is increasing from $23,000 in 2024 to $23,500 in 2025.

The IRS today also issued technical guidance on all cost-of-living adjustments affecting dollar limitations for retirement plans and other retirement-related items for the 2025 tax year. Notice 2024-80 PDFsPosted today on IRS.gov.

Key changes for 2025

The annual contribution limit for employees participating in 401(k), 403(b), government 457 plans, and the federal government’s Thrift Savings Plan was increased from $23,000 to $23,500.

The annual contribution limit to an IRA remains at $7,000. The IRA catch-up contribution limit for individuals age 50 and older was changed to include an annual cost-of-living adjustment under the SECURE 2.0 Act of 2022 (SECURE 2.0) but remains $1,000 for 2025.

The catch-up contribution limit, which generally applies to employees age 50 and older who participate in most 401(k), 403(b), government 457 plans, and the federal government’s Thrift Savings Plan, remains at $7,500 for 2025. Therefore, most participants in 401(k), 403(b), government 457 plans, and the federal government’s Thrift Savings Plan, in general, those 50 and older will be able to contribute up to $31,000 each year starting in 2025. The change in SECURE 2.0 imposes a higher catch-up contribution limit for employees ages 60, 61, 62 and 63 who participate in these plans. This higher catch-up contribution limit for 2025 is $11,250 instead of $7,500.

Income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), contribute to Roth IRAs, and claim the Saver’s Credit have all increased for 2025.

Taxpayers may deduct contributions to a traditional IRA if they meet certain conditions. If the taxpayer or the taxpayer’s spouse is covered by an employment retirement plan during the year, the deduction may be reduced or phased out until it is eliminated, depending on filing status and income. (The phase-out of the deduction does not apply if the taxpayer or their spouse is not covered by a workplace retirement plan.) The phase-out ranges for 2025 are as follows:

• For single taxpayers covered by a workplace retirement plan, the phase-out range has been increased from $77,000 to $87,000 to $79,000 to $89,000.
• For married couples filing jointly, the phase-out range will be increased from $123,000 to $143,000 to between $126,000 and $146,000 if the spouse making the IRA contribution is covered by a workplace retirement plan.
• For an IRA participant who is not covered by a workplace retirement plan and is married to a covered person, the phase-out range was increased from $230,000 to $240,000 to $236,000 to $246,000.
• The phase-out range for a married individual filing a separate return and covered by a workplace retirement plan is not subject to annual cost-of-living adjustments and remains between $0 and $10,000.
• The income phase-out range for taxpayers contributing to a Roth IRA was increased from $146,000 to $161,000 for singles and heads of household to between $150,000 and $165,000. The income phase-out range for married couples filing jointly has been increased from $230,000 to $240,000 to $236,000 to $246,000. The phase-out range for a married individual contributing to a Roth IRA and earning a separate return is not subject to annual cost-of-living adjustments and remains between $0 and $10,000.
• The income limit for the Savers Credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers increased from $76,500 to $79,000 for married couples filing jointly; $57,375 to $59,250 for heads of household; Those who applied separately for singles and married individuals increased from $38,250 to $39,500.
• The amount individuals can generally contribute to SIMPLE retirement accounts has been increased from $16,000 to $16,500. Under the change made in SECURE 2.0, individuals will be able to contribute higher amounts to certain eligible SIMPLE retirement accounts. For 2025, this high amount will remain at $17,600.
• The generally applicable catch-up contribution limit for employees 50 and older who participate in most SIMPLE plans remains at $3,500 for 2025. As part of the change made in SECURE 2.0, a different compensation limit is applied for employees aged 50 and over participating in SIMPLE plans. specific workable SIMPLE plans. For 2025, this limit will remain at $3,850. With the change made in SECURE 2.0, a higher catch-up contribution limit applies to employees aged 60, 61, 62 and 63 who participate in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Details on these and other retirement-related cost-of-living adjustments for 2025 are as follows: Notice 2024-80 PDFsAvailable at IRS.gov.
Source: IRS