Personal Finance News
IRS Raises 401(k) Contribution Limit for 2025 Tax Year
The Internal Revenue Service is revising its contribution limits for 401(k) and similar plans in 2025 — although the limits for IRAs will remain in place.
About the limit changes:
Recently, the IRS announced that it was changing the employee annual contribution limit for 401(ks), 403(bs), governmental 457 plans, and the federal government’s Thrift Savings Plan. For the 2025 tax year, the total employee contribution limit will be $23,500 for those under 50 years old. That’s up $500 from the current $23,000 and marks the fourth straight year that the agency has adjusted the limit upwards.
Despite adjustments to the regular annual contribution limit for 401(k)s and similar plans, the catch-up contribution limit — which applies to employees over 50 who contribute to eligible plans — will stay put at $7,500 for 2025. However, 2025 will introduce “super catch-up” contribution limits for those between the ages of 60 and 63, as created by the SECURE 2.0 Act of 2022. For those contributing employees, the catch-up limit for next year will be $11,250 rather than the regular $7,500. In total, that means those employees can contribute up to $34,750 to eligible plans (up from $30,500 in 2024).
Meanwhile, contribution limits for IRAs will remain the same next year. In the 2025 tax year, the contribution limit will once again be $7,000 for those under 50 years old. However, the IRS did increase this limit in 2024 as it was previously $6,500 in 2023.
That said, the IRS is making changes to the income phase-out range for Roth IRA contributions as well as to the Saver’s Credit. Starting with Roth IRA contributions, the income phase-out range for singles and heads of household has increased from $146,000-$161,000 to $150,000-$165,000. The range for married couples filing jointly has also increased, now coming in at $236,000 and $246,000 (versus $230,000 and $240,000 in 2024).
For the Saver’s Credit limits, individuals making $39,500 or less will now qualify for the credit (up from $38,250). For married couples filing jointly, the limit increased from $76,500 to $79,000. As a reminder, those income limits represent the upper limits of the program. Workers with incomes under those limits can earn a percentage of their eligible retirement account contributions back as a tax credit. The credit rates can be 50%, 20%, or 10% depending on the contributor’s adjusted gross income.
My thoughts:
I’m not going to pretend to understand how the IRS goes about calculating these yearly adjustments (or, in some cases, lack thereof). Still, it does seem a bit strange to me that the regular IRA contribution limit would remain the same in 2025 while so many other figures are changing. Again, I’m sure there’s a good reason — I’d just love to know what it is.
Regardless, taxpayers should definitely keep these adjusted limits in mind as they look ahead to the next tax year. In particular, older workers may want to consider taking advantage of the new “super catch-up” option. Meanwhile, those with lower incomes who may not have been aware of the Saver’s Credit should definitely take a closer look.
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