IRS Raises Pension and Retirement Plan Contribution Limits for 2025
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The IRS has increased pension and retirement plan contribution limits for 2025, allowing individuals to contribute more to 401(k) and similar plans. The new limits reflect a response to inflation, supporting Americans in maximizing their retirement savings.
The Internal Revenue Service (IRS) has announced that it increased the amount you can contribute to your 401(k) and other retirement plans to account for inflation.
The IRS reviews tax thresholds and contribution limits for retirement accounts every year, often adjusting for inflation. For the 2025 tax year, the IRS is raising the annual contribution limit for 401(k) plans by $500, moving from $23,000 in 2024 to $23,500.
This increase also applies to several other retirement plans, including 403(b) plans, governmental 457 plans, and the federal Thrift Savings Plan, which will all see the same adjusted contribution limit for 2025.
The IRS has reviewed contribution limits for Individual Retirement Accounts (IRAs), including both traditional and Roth IRAs, but will keep the annual contribution limit steady at $7,000 for 2025. The catch-up contribution limit for those aged 50 and over also remains unchanged at $1,000.
For employees aged 50 and up participating in most 401(k), 403(b), governmental 457 plans, and the Thrift Savings Plan, the catch-up contribution limit stays at $7,500 for 2025. This allows workers 50 and older to contribute up to $31,000 annually to those retirement plans, following provisions in the SECURE 2.0 Act of 2022.
Additionally, under SECURE 2.0, employees aged 60 to 63 can take advantage of an even higher catch-up limit, increasing from $7,500 to $11,250 in 2025. The IRS has also adjusted income thresholds for traditional IRA tax-deductible contributions, broadening access for eligible taxpayers.
The SECURE 2.0 Act, passed in 2022, builds on retirement reform by expanding access to retirement plans, increasing contribution limits for older workers, delaying required minimum distributions (RMDs) to age 73 (and eventually 75), and adding new options like emergency savings withdrawals and student loan matching. It's designed to make saving for retirement more accessible and flexible for Americans.
IRAs and 401(k)s are popular retirement savings options, each offering unique tax advantages. An IRA is opened independently, allowing for tax-deferred growth; contributions may be tax-deductible, with withdrawals taxed in retirement. A Roth IRA, funded with after-tax dollars, offers tax-free withdrawals in retirement and flexibility, as contributions (but not earnings) can be withdrawn without penalty.
A 401(k), offered through employers, has higher contribution limits and often includes matching contributions. Like a traditional IRA, it grows tax-deferred with pre-tax contributions. Some employers also offer a Roth 401(k) option, which allows after-tax contributions with tax-free retirement withdrawals. While 401(k) benefits those maximizing employer matches and contributions, IRAs, particularly Roth IRAs, provide flexibility and tax-free growth.
Long-Term Care and Health Savings Accounts
If you have or are considering purchasing Long-Term Care Insurance. The IRS also announced increases in the age-based tax deductible limits for 2025. The same age-based limits also apply to the maximum you can contribute to a Health Saving Account.
Standard Tax Deductions Increased for '25
The agency also announced its annual inflation adjustments for 2025 taxpayers, including increases to the standard deduction. For single taxpayers and married individuals filing separately, the standard deduction will rise by $400 to $15,000. Couples filing jointly will see an $800 increase, bringing their deduction to $30,000. Heads of households will have a standard deduction of $22,500, an increase of $600 over 2024.
Income thresholds for all seven federal tax brackets have also been adjusted upward.
Social Security Increases for '25
Meanwhile, the Social Security Administration announced that the nearly 68 million Social Security beneficiaries will see a 2.5% cost-of-living increase for benefit recipients starting in January 2025, averaging an increase of just over $50 on monthly checks.