The IRS has officially raised the annual contribution limits for 401(k) and several other retirement plans for the 2025 tax year, reflecting adjustments to account for inflation. Announced Friday, the new limit allows employees to contribute up to $23,500 to their 401(k) plans, up from $23,000 in 2024. The increase is part of the IRS’s annual review of tax thresholds and limits for retirement accounts to ensure contributions keep pace with inflation, benefiting those planning for retirement across various plan types.
Expanded Limits and Key Changes for 2025
This limit increase applies to a range of workplace retirement plans, including 403(b), governmental 457 plans, and the federal Thrift Savings Plan. Notably, the IRS has also kept the Individual Retirement Account (IRA) contribution limit unchanged at $7,000 for both traditional and Roth IRAs, while the catch-up contribution limit for individuals aged 50 and over also remains steady at $1,000.
For older employees looking to maximize their retirement savings, additional opportunities arise through increased catch-up contribution limits. Workers aged 50 and older can now contribute a combined maximum of $31,000 to their 401(k) plans, which includes an unchanged catch-up contribution of $7,500, introduced as part of the SECURE 2.0 Act of 2022. Additionally, individuals between ages 60 to 63 will see a new, elevated catch-up contribution limit of $11,250 in 2025.
Updated Income Limits for IRAs and Saver’s Credit
Alongside the contribution limit changes, the IRS has adjusted the income thresholds for claiming deductions on traditional IRAs and for making contributions to Roth IRAs. For single taxpayers covered by a workplace retirement plan, the traditional IRA tax deduction phase-out range rises to between $79,000 and $89,000, while the threshold for married couples filing jointly increases to $126,000 to $146,000.
Roth IRA contribution limits will now phase out for single taxpayers with incomes between $150,000 and $165,000, while the range for married couples filing jointly has increased to $236,000 to $246,000. Additionally, the Saver’s Credit for low- and moderate-income workers has also been adjusted, setting income caps at $39,500 for single filers, $79,000 for joint filers, and $59,250 for heads of households.
Implications for Retirement Savers
The new contribution limits and phase-out ranges offer a significant opportunity for American workers to bolster their retirement savings. According to a recent Vanguard report, only 14% of employees currently maximize their 401(k) contributions, with an average deferral rate of 7.4%. By taking advantage of the increased limits, workers can boost their retirement readiness, especially as they approach retirement age and aim to catch up on their savings.
These changes underscore the IRS’s commitment to adapting retirement plan contributions in response to economic factors, supporting a more secure retirement future for millions of Americans. As these updates take effect in 2025, taxpayers are encouraged to review their retirement strategies and consult with financial advisors to maximize potential benefits under the new limits.
