The Internal Revenue Service (IRS) announced on Friday that it has increased the contribution limits for 401(k) and other retirement accounts to account for inflation starting in the 2025 tax year. Each year, the IRS reviews tax thresholds and limitations for various retirement accounts and makes cost-of-living adjustments. For 2025, the IRS is raising the annual contribution limit for 401(k) plans by $500, from the current limit of $23,000 in 2024 to $23,500.
This increase also applies to several other retirement plans, including 403(b) retirement plans, governmental 457 plans, and the federal government’s Thrift Savings Plan. The IRS has also maintained the annual contribution limits for Individual Retirement Accounts (IRAs), including traditional and Roth IRAs, holding steady at $7,000 for 2025. The catch-up contribution limit for individuals aged 50 and over remains at $1,000.
For employees aged 50 and up enrolled in 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan, the catch-up contribution limit will stay at $7,500 for 2025. Workers aged 50 and older will be able to contribute up to $31,000 annually to these plans starting in 2025 under changes enacted by the SECURE 2.0 Act of 2022. The SECURE 2.0 Act has also introduced a higher catch-up contribution limit for workers aged 60 to 63, which will increase from $7,500 to $11,250 in 2025.
Retirement plan contribution limits adjusted
Additionally, the IRS has adjusted the income thresholds for tax deductions related to traditional IRA contributions. For individual taxpayers also covered by a workplace retirement plan, the phase-out range for the traditional IRA tax deduction will increase to $79,000 to $89,000, up from $77,000 to $87,000.
For married couples filing joint tax returns, the phase-out range will rise to $126,000 to $146,000, an increase of $3,000 from last year. The income phase-out range for contributions to Roth IRAs has also increased. For individuals and heads of households, it now ranges from $150,000 to $165,000, up from $146,000 to $161,000.
For married couples filing jointly, the phase-out range rises to $236,000 to $246,000, an increase of $6,000. The IRS also announced new thresholds for the Saver’s Credit, also known as the Retirement Savings Contributions Credit, which provides incentives for low- and moderate-income workers to save for retirement. For 2025, the income limits for eligibility will be $39,500 for individuals, $79,000 for married couples filing jointly, and $59,250 for heads of household.
The IRS reviews and potentially updates contribution and eligibility thresholds for retirement accounts each year to ensure they keep pace with inflation.
