The IRS has announced an increase in the amount of tax-favored funds individuals can contribute towards their retirement in 2025. The limit for contributions to 401(k) plans will rise to $23,500, up from $23,000 in 2024. This change is part of the cost-of-living adjustments required by law for pension plans and other retirement-related items.
For 401(k) and similar plans, the catch-up contribution limit for employees aged 50 and over remains $7,500 for 2025, allowing those individuals to contribute up to $31,000 each year. SECURE 2.0 also introduces a higher catch-up contribution limit of $11,250 for employees aged 60 to 63. Contributions to these plans are typically pre-tax, allowing for tax-deferred growth until withdrawals are made in retirement.
IRA plans will maintain a contribution limit of $7,000 for 2025, with an additional $1,000 catch-up contribution for individuals aged 50 and over. Phase-outs also apply, with adjusted ranges for 2025 based on filing status and income levels. Contributions to traditional IRAs are tax-deductible, while Roth IRAs offer tax-free withdrawals for qualified individuals.
Simple IRA accounts will see an increase in contribution limits to $16,500 in 2025, with a catch-up contribution limit of $3,500 for individuals aged 50 and over. Higher catch-up contributions of $5,250 are available for employees aged 60 to 63 participating in SIMPLE plans. The Saver’s Credit provides tax benefits for low- and moderate-income workers making eligible contributions to retirement plans.
Defined benefit plans and qualified charitable distributions are also subject to adjustments for 2025. The dollar limit on premiums for qualified longevity annuity contracts has increased, while a new exception for victims of domestic abuse allows for penalty-free withdrawals from retirement plans up to $10,300. More information on these adjustments can be found in the official IRS guidance.
Overall, the changes announced by the IRS for 2025 provide individuals with increased opportunities for saving towards retirement through various tax-favored plans. These adjustments aim to encourage long-term financial planning and security for individuals as they prepare for their retirement years. It is important for individuals to review their options and consider maximizing contributions to take advantage of the potential tax benefits and growth opportunities offered by these retirement plans.
