The Internal Revenue Service (IRS) announced on Friday that it is raising the contribution limits for 401(k) and other retirement plans to adjust for inflation.
Annual Contribution Limit Increases
Each year, the IRS reviews various tax thresholds and limits for retirement accounts, considering cost-of-living adjustments based on inflation since the last update. For the 2025 tax year, the IRS will increase the annual contribution limit for 401(k) plans by $500, raising it from the current limit of $23,000 in 2024 to $23,500.
Other Retirement Plans Affected
These contribution limit increases will also apply to several other retirement plans, including 403(b) retirement plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.
Individual Retirement Accounts (IRAs)
While the IRS adjusts contribution limits for IRAs, including traditional and Roth IRAs, it will maintain the annual contribution limits at $7,000 from 2024 to 2025. Additionally, the catch-up contribution limit for individuals aged 50 and older will remain at $1,000 for 2025.
Catch-Up Contributions for Older Workers
For employees aged 50 and up enrolled in most 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan, the catch-up contribution limit will stay at $7,500 for 2025. However, starting in 2025, workers who are 60 to 63 years old will benefit from a higher catch-up contribution limit of $11,250, an increase from the previous limit of $7,500, following changes made under the SECURE 2.0 Act of 2022.
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Adjustments to Traditional IRA Deduction Limits
The IRS has also adjusted the income thresholds for taxpayers wishing to contribute to a traditional IRA and receive a tax deduction. For individual taxpayers covered by a workplace retirement plan, the tax deduction phase-out range for traditional IRA contributions will increase to between $79,000 and $89,000, up from the previous range of $77,000 to $87,000. For married couples filing jointly, the phase-out range rises to between $126,000 and $146,000, marking a $3,000 increase from last year.
Roth IRA Contribution Limits
The income phase-out range for taxpayers contributing to a Roth IRA has also been updated. For individuals and heads of households, the phase-out range will now be between $150,000 and $165,000, up from $146,000 to $161,000. For married couples filing jointly, the phase-out range increases by $6,000 to between $236,000 and $246,000.
Saver’s Credit Thresholds
Additionally, the Saver’s Credit, also known as the Retirement Savings Contributions Credit, for low- and moderate-income workers will be set at $39,500 for individuals, $79,000 for married couples filing jointly, and $59,250 for heads of household.
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