The Internal Revenue Service (IRS) recently issued Notice 2024-80, which makes adjustments to the annual contribution limits for qualified defined contribution plans and individual retirement accounts (IRAs) for the 2025 tax year.
Qualified Defined Contribution Plans
The annual contribution limit for workers participating in qualified defined contribution plans, which include 401(k), 403(b), and most 457 plans, and the federal government’s Thrift Savings Plan, increased from $23,000 in 2024 to $23,500 in 2025. Plan contribution limits increase according to inflation rates for the third quarter of each year.
Catch-up contributions for individuals 50 and older remain at $7,500, which amounts to a total annual allowed contribution of $31,000. Furthermore, a super catch-up contribution provision in the SECURE 2.0 Act becomes effective in 2025. This provision allows individuals who are ages 60 – 63 to contribute an additional $11,250 instead of $7,500 in 2025.
IRAs
The annual contribution limit for IRAs will remain at $7,000 for 2025. Likewise, the IRA catch-up contribution limit will remain at $1,000 for 2025. However, the SECURE 2.0 Act amended the catch-up contribution limit to include an annual cost-of-living adjustment (COLA).
The IRS also increased income eligibility ranges for IRAs. The phase-out eligibility range for single individuals with a workplace retirement plan will increase to between $79,000 and $89,000 for 2025, up from $77,000 to $87,000 in 2024. Likewise, the phase-out eligibility range for married couples will increase to between $126,000 and $146,000, up from $123,000 to $143,000.
Individuals with no access to workplace retirement plans but who are married to those with workplace retirement plans will also see an increase in the phase-out eligibility range. This income range increases to between $236,000 and $246,000 in 2025, up from between $230,000 and $240,000 in 2024. However, for a married individual covered by a workplace retirement plan who files a separate income tax return, the phase-out range remains between $0 and $10,000, as it is not subject to an annual COLA.
Saver’s Credit Retirement Accounts
The IRS increased the income limit for the Saver’s Credit, also known as the Retirement Savings Contributions Credit, which benefits low and moderate-income workers. The income limit rose to $79,000 for married couples filing jointly, up from $59,250 in 2024. The income limit for heads of household increased to $59,250 from $57,375 and $39,500 from $38,250 for single taxpayers and married individuals filing separately.
SIMPLE Retirement Accounts
Individuals with SIMPLE (savings incentive match plan for employees) retirement accounts will be able to contribute $16,500 in 2025, up from $16,000 in 2024. The SECURE 2.0 Act permits individuals to contribute more to certain applicable SIMPLE retirement plans, which remains at $17,600 for 2025.
Catch-up contribution limits for employees ages 50 and older to most SIMPLE plans remain at $3,500 for 2025. Likewise, as per the SECURE 2.0 Act, catch-up contribution limits for employees ages 50 and older who participate in certain SIMPLE plans remain at $3,850. A higher catch-up contribution limit applies for employees from ages 60 to 63 with SIMPLE retirement accounts, which is $5,250 for 2025.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and H.R./employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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