The Internal Revenue Service (IRS) has announced an increase in the amount of tax-favored funds that individuals can contribute to their retirement plans in 2025. The limit for most individuals contributing to their 401(k) plans will rise to $23,500, compared to $23,000 in 2024. The announcement is tied to cost-of-living adjustments required by law for pension plans and other retirement-related items.
For 401(k) and similar plans, the contribution limit will be $23,500 in 2025, with a catch-up contribution limit of $7,500 for individuals aged 50 and over. Additionally, employees aged 60 to 63 can now contribute up to $11,250 as a catch-up contribution. These contributions are typically made pre-tax and allow for tax-deferred growth until withdrawals are made during retirement.
For IRA plans, the limit on annual contributions remains at $7,000, with an additional $1,000 catch-up contribution for individuals aged 50 and over. Phase-outs apply depending on income and filing status, limiting tax deductions for those covered by a retirement plan at work.
Roth IRA plans differ from traditional IRAs in that contributions are not deductible, but qualified withdrawals are typically tax-free. Income phase-outs apply to Roth IRAs with adjusted ranges for singles, heads of households, and married couples filing jointly.
For SIMPLE retirement accounts, the contribution limit will increase to $16,500 in 2025, with a catch-up contribution limit of $3,500 for individuals aged 50 and over. Higher contribution limits apply to certain applicable SIMPLE plans, benefiting small employers with up to 25 employees.
The Saver’s Credit is a tax credit available to low- and moderate-income workers who make eligible contributions to an IRA or employer-sponsored retirement plan. Income limits for claiming the credit have increased for 2025.
Other retirement-related updates include an increase in the limit on the annual benefit under a defined benefit plan to $280,000, as well as adjustments to the dollar limit on premiums paid for a QLAC and the total amount of QCDs that can be excluded from gross income. An exception now exists for victims of domestic abuse, allowing for early withdrawals from retirement plans without the usual 10% additional tax penalty.
For more information on retirement plans cost-of-living adjustments and income tax brackets for 2025, individuals can refer to official guidance from the IRS. Social Security cost-of-living adjustments are also available for reference.
