Kevin J. Bonnett, CPA
Vice President & Director
If you haven’t already changed your workplace retirement plan salary deferral for 2025, now is the time to do it. Several changes have been made to retirement plan contribution limits for this year, reflecting cost-of-living adjustments and new provisions under the SECURE 2.0 Act. These changes impact various retirement accounts, including 401(k)s, IRAs, and other workplace retirement plans. Here’s a detailed overview:
401(k) Contribution Limits
For 2025, the annual contribution limit for 401(k) plans has increased to $23,500, up from $23,000 in 2024. This increase allows employees to save more for retirement through their workplace retirement plans. The 401(k) contribution limit applies to several other retirement plans, including 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.
Catch-Up Contributions
Workers aged 50 and older are eligible to make additional “catch-up” contributions to their retirement accounts. For 2025, the catch-up contribution limit for 401(k) plans remains at $7,500. This means that employees aged 50 and older can contribute up to $31,000 annually to their 401(k) plans, including the standard contribution limit and the catch-up contribution.
However, a new provision under the SECURE 2.0 Act allows for even greater catch-up contributions for certain older workers. Starting in 2025, employees who attain age 60, 61, 62, or 63 during the year, can make catch-up contributions of up to $11,250. This higher catch-up contribution limit is designed to help older workers boost their retirement savings as they approach retirement age.
IRA Contribution Limits
The annual contribution limit for Individual Retirement Accounts (IRAs) remains unchanged for 2025. Individuals can contribute up to $7,000 to their traditional or Roth IRAs. The catch-up contribution limit for IRAs also remains at $1,000 for individuals aged 50 and older. This means that older workers can contribute up to $8,000 annually to their IRAs.
Phase-Out Ranges for Traditional IRAs
The IRS has adjusted the income phase-out ranges for traditional IRA contributions for 2025. These phase-out ranges determine the eligibility for deducting traditional IRA contributions from taxable income. For single taxpayers covered by a workplace retirement plan, the phase-out range has increased to between $79,000 and $89,000, up from between $77,000 and $87,000 in 2024. For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range has increased to between $126,000 and $146,000, up from between $123,000 and $143,000.
Phase-Out Ranges for Roth IRAs
The income phase-out ranges for Roth IRA contributions have also been adjusted for 2025. For single taxpayers and heads of household, the phase-out range has increased to between $150,000 and $165,000, up from $146,000 and $161,000 in 2024. For married couples filing jointly, the phase-out range has increased to between $236,000 and $246,000, up from between $230,000 and $240,000. These adjustments allow higher-income individuals to contribute to Roth IRAs, albeit at reduced contribution levels.
Saver’s Credit
The Saver’s Credit, also known as the Retirement Savings Contributions Credit, provides a tax credit to low- and moderate-income workers who contribute to retirement accounts. For 2025, the income limits for the Saver’s Credit have been adjusted. The credit is available to individuals with an income of up to $39,500, heads of household with an income of up to $59,250, and married couples filing jointly with an income of up to $79,000.
Defined Benefit Plans
The IRS has also adjusted the contribution limits for defined benefit plans. For 2025, the limitation on the annual benefit under a defined benefit plan has increased to $280,000, up from $275,000 in 2024. This adjustment allows participants in defined benefit plans to receive higher annual benefits based on their contributions and years of service.
Defined Contribution Plans
For defined contribution plans, the annual contribution limit has increased to $70,000 for 2025, up from $69,000 in 2024. This limit applies to the total contributions made by both the employee and the employer to the employee’s retirement account. The increase in the contribution limit allows for greater retirement savings through defined contribution plans.
SIMPLE Retirement Accounts
The annual contribution limit for SIMPLE retirement accounts has increased to $16,500 for 2025, up from $16,000 in 2024. This adjustment allows employees participating in SIMPLE retirement accounts to save more for retirement.
Summary
The changes to the 2025 retirement plan contribution limits reflect the IRS’s efforts to account for inflation and provide greater opportunities for retirement savings. The increased contribution limits for 401(k) plans, higher catch-up contributions for pre-retirees who attain ages 60 through 63 during the year, and adjusted phase-out ranges for IRAs and Roth IRAs all contribute to a more robust retirement savings landscape. These adjustments are designed to help individuals save more for retirement and ensure financial security in their later years.
As always, it’s important to review your retirement savings strategy and take advantage of the increased contribution limits and other changes for 2025.
Contact your GT Reilly advisor for advice on making the most of these opportunities and ensure that you are on track to meet your retirement goals.
