The IRS announced higher 401(k) contribution caps for 2025, aiming to help more Americans boost their retirement savings.
Key Facts:
– The maximum 401(k) contribution rises from $23,000 in 2024 to $23,500 in 2025.
– IRA contribution limits remain at $7,000 for both traditional and Roth accounts.
– Catch-up contributions for those 50 or older stay at $7,500, allowing a total of $31,000 for some savers.
– A new rule for workers aged 60 to 63 increases their catch-up limit to $11,250 starting in 2025.
– Income phase-out ranges for claiming IRA deductions and contributing to Roth IRAs also went up slightly.
The Rest of The Story:
Although the IRS opted for a modest $500 increase in 401(k) plans, this bump partly reflects the continuous rise in living costs.
It also applies to 403(b) and governmental 457 plans, along with the federal Thrift Savings Plan.
Savers in their 50s can still funnel an extra $7,500 into those accounts each year, potentially hitting a total of $31,000 when including regular contributions.
Under the SECURE 2.0 Act of 2022, Americans aged 60 to 63 gain an even greater advantage: they can contribute $11,250 extra beginning in 2025.
Meanwhile, the yearly IRA limit—$7,000—stays unchanged, and so does the additional $1,000 for catch-up if you’re 50 or older.
Taxpayers can also enjoy broader eligibility for deductions and Roth IRA contributions due to phase-out range adjustments.
For example, single filers covered by a workplace retirement plan now see their deduction range move from $79,000 to $89,000, while married couples filing jointly have a phase-out between $126,000 and $146,000.
The Roth IRA phase-out range stretches to $150,000–$165,000 for single filers and $236,000–$246,000 for joint filers.
These changes could help more middle- and higher-income households stay eligible for tax benefits.
Even though the Social Security cap went up 4.45%,
the amount you are allowed to save tax deferred only increased 2.17% (if you work for a company with a 401k).
Just $7k if you work for small business.
Your government wants you dependent and/or working for a good union company. pic.twitter.com/m5MJdn5PUX— Frog Capital (@FrogNews) January 2, 2025
The Bottom Line:
Even with a modest increase, the revised 401(k) limit can help workers build a stronger financial buffer for their golden years.
Adjusted income thresholds for IRAs and Roth IRAs also expand opportunities to claim deductions or qualify for tax-free growth.
READ NEXT: Nine Million Workers Across 21 States to Get a Pay Raise on January 1
It’s a good time to revisit your retirement strategy and consider whether you can use these updated limits to strengthen your long-term savings.