As we enter 2025, it’s an ideal time to reassess your retirement planning and take advantage of new opportunities to save. The IRS has recently announced updates to the 401k contribution limits 2025, making it an important year for workers to maximize their retirement savings. These changes not only affect 401k plans but also several other retirement accounts, such as 403(b), governmental 457 plans, and IRAs. Here’s what you need to know about the 401(k) contribution limits 2025 and how these adjustments can benefit your retirement strategy.
Increased 401k Contribution Limits 2025
One of the most notable changes for 2025 is the increase in the annual contribution limit for 401(k) plans. The new limit is set at $23,500, which is an increase of $500 from the 2024 limit of $23,000. This increase applies not only to 401(k) plans but also to other retirement accounts such as 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan. For those using these accounts to save for retirement, this adjustment provides additional room for tax-deferred growth, enabling savers to increase their retirement savings.
The IRS adjusts the 401k contribution limits every year to reflect inflation, ensuring that workers can save more in response to rising living costs. If you are already contributing the maximum amount allowed, this $500 increase will make a meaningful difference in your retirement nest egg over time.
401(k) Contribution Limits 2025 and IRA Adjustments
While the 401k contribution limits 2025 have seen an increase, the contribution limits for Individual Retirement Accounts (IRAs) remain unchanged. The annual contribution limit for both traditional and Roth IRAs stays at $7,000 for the 2025 tax year, the same as it was for 2024. However, the IRS has made some changes to the income phase-out ranges for both types of IRAs, which could impact your ability to contribute.
For traditional IRAs, the deduction phase-out range for individuals who are also covered by a workplace retirement plan rises to between $79,000 and $89,000 for single filers, up from $77,000 to $87,000 in 2024. For married couples filing jointly, the phase-out range increases to $126,000 to $146,000, an increase of $3,000. Similarly, the income limits for Roth IRAs have been adjusted. The phase-out range for individuals and heads of households increases to between $150,000 and $165,000, up from $146,000 to $161,000. For married couples filing jointly, the phase-out range rises to between $236,000 and $246,000.
These changes make it easier for higher-income individuals to take advantage of tax-deferred retirement savings through IRAs. If your income falls within these newly adjusted ranges, you may now be eligible to contribute more to your IRA or even claim a larger deduction for traditional IRA contributions.
Catch-Up Contributions for 401(k) Plans
For individuals aged 50 and older, the IRS offers catch-up contributions that allow you to boost your retirement savings. For the 2025 tax year, the catch-up contribution limit for most 401(k), 403(b), and governmental 457 plans remains at $7,500. This means that workers aged 50 and older can contribute a total of $31,000 to these retirement plans, combining the regular $23,500 contribution limit with the $7,500 catch-up limit.
Under the SECURE 2.0 Act of 2022, a higher catch-up contribution limit applies to workers aged 60 to 63. In 2025, these workers will be able to contribute up to $11,250 in catch-up contributions to 401(k) and similar retirement plans. This is a significant increase, offering a unique opportunity for older workers to accelerate their retirement savings in the final years before retirement.
Saver’s Credit and Increased Eligibility
In addition to the contribution limits, the IRS has also made adjustments to the Saver’s Credit, which is available to low- and moderate-income workers who contribute to a retirement account. The Saver’s Credit can provide a valuable tax benefit, helping to reduce the tax burden and encourage more savings.
For 2025, the Saver’s Credit eligibility thresholds have been updated. Individuals with an income of up to $39,500, married couples filing jointly with an income of up to $79,000, and heads of households with an income of up to $59,250 can now qualify for the credit. These increases allow more individuals to benefit from the credit, which can provide a significant boost to retirement savings for those in lower income brackets.
Conclusion: Plan for 2025 and Maximize Your Retirement Savings
The 401(k) contribution limits 2025, along with changes to IRA contribution limits, catch-up contributions, and the Saver’s Credit, present an excellent opportunity for individuals to revisit their retirement strategies. With the increase in 401k contribution limits 2025, there is more room to grow your retirement savings. Whether you’re in your 20s or approaching retirement, taking advantage of these updated limits can help ensure a more secure financial future.
If you are 50 or older, the catch-up contribution limits give you an opportunity to put more money into your retirement accounts as you near retirement age. Additionally, the increased Saver’s Credit eligibility means that more low- and moderate-income workers can benefit from tax savings while contributing to their retirement accounts.
As inflation continues to affect the cost of living, these adjustments are a helpful way for the IRS to ensure that workers can save adequately for retirement. Whether you’re already contributing the maximum amount or are looking to start saving more, the 401k contribution limits 2025 provide a great incentive to take action and improve your financial outlook for the future.
Read about the Retirement Savings Magic Number here.
