The Internal Revenue Service (IRS) declared on Friday a hike in the contribution limits for 401(k) and various retirement plans for the 2025 tax season. The annual contribution limit for the 401(k) plan will increase by $500, resulting in a new limit of $23,500. This updated limit also encompasses 403(b) retirement plans, governmental 457 plans, as well as the federal government’s Thrift Savings Plan.
The IRS has kept the catch-up contribution limit for employees aged 50 and older participating in most 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan at $7,500 for the year 2025. In line with the SECURE 2.0 Act of 2022, workers aged 50 and above will be allowed to contribute as much as $31,000 per year to these retirement accounts beginning in 2025. Additionally, the Act has introduced a heightened catch-up contribution limit for individuals between 60 and 63 years old, which will rise to $11,250 in 2025.
For the year 2025, the annual contribution limit for traditional and Roth IRAs will stay at $7,000, and the catch-up contribution limit for individuals aged 50 and above will remain static at $1,000. Furthermore, there have been revisions to the tax deduction thresholds related to traditional IRA contributions. The new phase-out range for individual taxpayers who are covered by a workplace retirement plan is set between $79,000 and $89,000.
IRS Raises 401(k) Contribution Limits
For couples filing tax returns jointly, this range has expanded to between $126,000 and $146,000. The income phase-out range for Roth IRAs for individuals and heads of households has been elevated to between $150,000 and $165,000, while for married couples filing jointly, it has increased to a range of $236,000 and $246,000.
The yearly adjustments by the IRS to contribution and eligibility limits aim to account for inflation and ensure the continued effectiveness of these retirement saving tools. These modifications will influence individuals who are building their retirement savings, providing fresh opportunities for savers. With only a few months remaining in 2024, it’s vital for individuals to strive for maximized contributions.
They ought to evaluate their savings and expenditures, as well as consult with their company’s HR department to understand the availability of matching funds. Additionally, strategizing portfolio adjustments towards more cost-effective options can aid in reducing investment fees, directing more capital into savings. Adequate planning for the incoming year is crucial, and individuals should take stock of their entire portfolio to identify aspects requiring improvement.
They should examine employer-matched accounts such as 401(k)s to ensure they are making the most of the available match and schedule their contributions throughout the year for better manageability. By adopting these strategies, individuals can prepare themselves effectively for the impending changes in 2025 and enhance their retirement savings approach.
