As we move into 2025, the IRS has announced updated contribution limits for 401(k)s, IRAs, and other retirement accounts. These adjustments provide savers with an opportunity to increase their retirement contributions and better prepare for the future. Here’s what you need to know about the new limits and how to make the most of them.
Updated 401(k) Contribution Limits for 2025
The annual contribution limit for 401(k), 403(b), and most 457 plans has increased to $23,500, up from $23,000 in 2024.
- Catch-Up Contributions (Age 50 and Older): The catch-up contribution limit remains $7,500, bringing the total contribution limit to $31,000 for eligible participants.
- NEW Higher Catch-Up Contributions (Ages 60–63): For eligible participants, a new higher catch-up contribution limit of $11,250 (150% of the standard catch-up contribution) is available.
- Compensation Limits: Employer matching is allowed on income up to $350k, up from $345k in 2024.
- Total Contributions: The total 401(k) contributions from all sources (employee and employer) have increased to $70k, up from $69k in 2024.
IRA Contribution Limits for 2025
For Traditional and Roth IRAs, the contribution limits for 2025 remain unchanged:
- Annual Contribution Limit: $7,000.
- Catch-Up Contributions (Age 50 and Older): Remains $1,000, allowing a total contribution of $8,000 for eligible participants.
It’s important to note that income limits for contributing to a Roth IRA have increased. The limits are based on Modified Adjusted Gross Income (MAGI). The new phase-out ranges for 2025:
- Single Filers: $150,000–$165,000.
- Married Filing Jointly: $236,000–$246,000.
Updates to SIMPLE IRA and SEP IRA Limits
SIMPLE IRAs
- Employee Contribution Limit: Increased to $16,500, up from $16,000.
- Catch-Up Contributions (Age 50 and Older): Remains at $3,500.
- NEW Higher Catch-Up Contributions (Ages 60–63): Eligible participants can contribute an additional $5,250 (150% of the standard SIMPLE IRA catch-up limit).
SEP IRAs
- Contribution Limit: Increased to $70,000, up from $69,000. Contributions are capped at 25% of compensation or the annual limit, whichever is lower.
Maximizing the 2025 Contribution Limits
The new contribution limits provide an excellent opportunity to revisit your retirement savings strategy.
- Increase Your Contributions: If you’re not yet contributing the maximum, consider increasing your savings rate to take advantage of the higher limits.
- Maximize Employer Matching: Contribute enough to receive the full match from your employer, as this is essentially free money for your retirement.
- Leverage Catch-Up Contributions: If you’re 50 or older, utilize catch-up contributions to save even more. For those aged 60–63, explore the new higher catch-up opportunities.
- Consider Backdoor Roth: If you’re near the phase-out for Roth IRA contributions, consider strategies like a backdoor Roth IRA.
- Review Your Financial Plan: The start of a new year is the perfect time to evaluate your overall strategy to ensure your retirement savings are on track.
Stay Ahead with Expert Guidance
Understanding and adapting to these changes is essential for effective financial planning. If you have questions about these changes or would like help optimizing your savings, our team at Trinity Wealth Management is here to guide you. Contact us to get your year off to a strong start.
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