IRS Bumps Up 401(k) Limits For 2025 – Find Out How Much You Can Now Contribute

The IRS recently announced that contribution limits for 401(k) retirement plans will increase in 2025, allowing workers to save more for their future. Beginning next year, employees can contribute up to $23,500 to their 401(k) plans, $500 more than the limit in 2024. 

This increase also applies to other retirement savings plans, including 403(b) plans, governmental 457 plans and the federal government's Thrift Savings plan. 

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Catch-Up Contributions for Older Workers

Workers age 50 and older can continue to take advantage of the catch-up contribution, allowing them to contribute up to $7,500 over the standard limit. This means they can contribute up to $31,000 to their 401(k) plans in 2025. 

The SECURE 2.0 Act of 2022 introduces an even higher catch-up provision for individuals aged 60 to 63. According to the IRS, these workers can contribute up to $11,250 in catch-up funds, significantly boosting their annual retirement savings potential.

Vanguard reports that 15% of people ages 50 and older with catch-up contribution features put more into their retirement plans. However, only 14% of people with workplace retirement plans contribute the maximum amount allowed. 

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IRA Contribution Limits Remain Steady

While the 401(k) contribution limit will increase, the IRS did not raise the annual contribution limit for Individual Retirement Accounts (IRAs), which will stay at $7,000 in 2025. The catch-up contribution for IRAs will also remain the same, allowing people ages 50 and over to contribute an additional $1,000 yearly. 

Income Phase-Out Adjustments for IRAs

In 2025, the income phaseout ranges for IRA deductions will increase to reflect cost-of-living changes. For example, single taxpayers covered by a workplace retirement plan can deduct IRA contributions up to an income of $89,000 (up from $87,000 in 2024). For married couples filing jointly, the phaseout range for deducting contributions is between $126,000 and $146,000.

The income thresholds for Roth IRAs have also been updated. Single filers can now contribute to a Roth IRA if their income is under $165,000, while married couples filing jointly face a phaseout range of $236,000 to $246,000.

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Standard Deduction and Other IRS Adjustments

The IRS has also increased the standard deduction. Single taxpayers and married individuals filing separately can now deduct $15,000 in 2025, up from $14,600 in 2024. Married couples filing jointly will see their standard deduction rise to $30,000, while heads of households receive an increase to $22,500.

These annual adjustments are part of the IRS's efforts to help Americans manage rising living costs and maintain their retirement savings. The new limits reflect the rising cost of living and provide workers more flexibility in building their retirement savings while encouraging older workers to save more as they near retirement.

Understanding these updates can help savers make informed decisions about their retirement planning for the coming year.

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