Workplace retirement savers will be able contribute an extra $500 to their 401(k) in 2025, the Internal Revenue Service announced today.
As had been forecast, the IRS today officially revealed that the contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan, is increased to $23,500, up from $23,000 in 2024.
The IRS today also issued technical guidance regarding all of the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025 in Notice 2024-80 PDF, posted today on IRS.gov.
The limit on annual contributions to an IRA remains $7,000. The IRA catch-up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost-of-living adjustment but remains $1,000 for 2025.
Catch-up contributions
The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.
“Recordkeepers, payroll providers, and plan sponsors have come together to prepare for a seamless implementation of this provision,” David Stinnett, Head of Strategic Retirement Consulting at Vanguard, told 401(k) Specialist.
Over the summer, the SPARK Institute hosted a workshop on Vanguard’s campus with payroll providers and other recordkeepers to ensure coordination. “Many recordkeepers, including Vanguard, have adopted an ‘opt-out’ approach to this optional provision, assuming plan sponsors want to add it unless they specify otherwise,” Stinnett said.
Catch-up contributions have historically been popular with plan sponsors and eligible employees, Stinnett added. “Through plan features such as automatic enrollment, emergency savings tools, financial wellness, and accessible advice within plans, our industry has recently placed a lot of focus on ensuring a strong start to retirement savings,” Stinnett said. “While these tools are incredibly important and have had a strong impact on strengthening retirement readiness, it is equally important to empower employees nearing retirement to maximize their savings. This provision is especially beneficial for employees further in their career who may not have benefitted from modern plan features like auto-enrollment or auto-increase early in their careers, potentially delaying their savings.”
IRA limits
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2025:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $79,000 and $89,000, up from between $77,000 and $87,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $126,000 and $146,000, up from between $123,000 and $143,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
- The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
- The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for singles and married individuals filing separately, up from $38,250.
- The amount individuals can generally contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000. Pursuant to a change made in SECURE 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts. For 2025, this higher amount remains $17,600.
- The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most SIMPLE plans remains $3,500 for 2025. Under a change made in SECURE 2.0, a different catch-up limit applies for employees aged 50 and over who participate in certain applicable SIMPLE plans. For 2025, this limit remains $3,850. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for 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 in Notice 2024-80 PDF, available on IRS.gov.
2025 HSA limits
Back in May, the IRS announced that Health Savings Account owners will be able to contribute slightly more to the triple-tax-advantaged accounts in 2025. The IRS raised limits by $150 for individuals and by $250 for individuals with family coverage compared to this year’s limits.
According to IRS Revenue Procedure 2024-25, for calendar year 2025, the annual HSA contribution limit for an individual with self-only coverage under a high-deductible health plan (HDHP) will be $4,300, up from $4,150 in 2024. For an individual with family coverage, the amount will be $8,550, up from $8,300. Those who are age 55 or older by the end of the year can contribute an additional $1,000 to their HSA.
To be eligible to contribute, a participant must have an HSA-qualified high-deductible health plan (HDHP) and not be enrolled in Medicare. The IRS also updated the definition of an HDHP for 2025. Next year, a health plan with an annual deductible that isn’t less than $1,650 for self-only coverage, up from $1,600 this year, or $3,300 for family coverage, up from $3,200 in 2024, will be defined as a high-deductible health plan.
Social Security beneficiaries will see a lower cost-of-living adjustment (COLA) for 2025 than in recent years, as the Social Security Administration (SSA) on Oct. 10 released a finalized adjustment of 2.5% following cooled inflation in the third quarter of 2024.
On average, Social Security retirement benefits for 72.5 million Americans will increase by about $50 per month starting in January as a result of the COLA.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) is slated to increase to $176,100 from $168,600.
SEE ALSO:
• 2025 401(k) Contribution Limits: Milliman Halves its Increase Prediction
• 2025 401(k) Contribution Limit Forecast: $1,000 Increase on Tap?