IRS Raises 401(k) Contribution Limits for 2025: What You Need to Know

The Internal Revenue Service (IRS) recently revealed significant updates regarding retirement savings contributions for the 2025 tax year, adjusting limits to reflect inflation.

Increased 401(k) Contribution Limits

For the 2025 tax year, the annual contribution limit for 401(k) plans will increase by $500, raising the cap from $23,000 in 2024 to $23,500. This increase applies not only to 401(k) plans but also to several other retirement accounts, including 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan.

Stability in IRA Contribution Limits

While the IRS has made adjustments to the contribution limits for other retirement accounts, the annual contribution limit for Individual Retirement Accounts (IRAs), including both traditional and Roth IRAs, will remain unchanged at $7,000 for 2025. The catch-up contribution limit for individuals aged 50 and older will also stay at $1,000.

Catch-Up Contributions for Older Workers

Workers aged 50 and above who participate in most 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan can contribute up to $31,000 annually starting in 2025, thanks to provisions in the SECURE 2.0 Act of 2022. Notably, the new law also introduces a higher catch-up contribution limit for workers aged 60 to 63, increasing their limit to $11,250 in 2025.

Also read: Can I apply for SNAP benefits and WIC payments in November?

Adjustments to Traditional IRA Deduction Phase-Out Ranges

The IRS has also modified the income thresholds for taxpayers contributing to traditional IRAs who wish to deduct their contributions. For individual taxpayers covered by a workplace retirement plan, the tax deduction phase-out range will rise to between $79,000 and $89,000, an increase from the previous range of $77,000 to $87,000. For married couples filing jointly, the new phase-out range will be between $126,000 and $146,000, reflecting a $3,000 increase.

Changes to Roth IRA Contribution Limits

The income phase-out range for Roth IRA contributions has also been adjusted. For individual taxpayers and heads of households, the new range will be between $150,000 and $165,000, compared to the prior range of $146,000 to $161,000. Married couples filing jointly will see an increase in their phase-out range to between $236,000 and $246,000, up by $6,000 from last year.

Saver’s Credit for Low- and Moderate-Income Workers

Lastly, the IRS has updated the Saver’s Credit, also known as the Retirement Savings Contributions Credit, for low- and moderate-income workers. The new income limits are set at $39,500 for individuals, $79,000 for married couples filing jointly, and $59,250 for heads of household.

These adjustments by the IRS aim to support individuals in enhancing their retirement savings, making it easier for them to plan for a secure financial future.

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