The IRS has released Notice 2024-80, containing cost-of-living adjustments for 2025 that affect amounts employees can contribute to 401(k) plans and individual retirement accounts (IRAs).
IMPORTANT DATES
Nov. 1, 2024
The IRS released the 2025 retirement plan limits.
Jan. 1, 2025
The effective date of the 2025 retirement plan limits.
Key Changes for 2025
The employee contribution limit for 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024. Other key limits include the following:
- The employee contribution limit for IRAs remains unchanged at $7,000.
- The IRA catch‑up contribution limit for individuals aged 50 and over remains unchanged at $1,000 for 2025 (despite this limit now including an annual cost‑of‑living adjustment because of legislation enacted at the end of 2022, referred to as “SECURE 2.0”).
- The employee contribution limit for SIMPLE IRAs and SIMPLE 401(k) plans is increased to $16,500, up from $16,000. Pursuant to a change made in SECURE 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts—for 2025, this higher amount remains unchanged at $17,600.
- The limits used to define a “highly compensated employee” and a “key employee” are increased to $160,000 (up from $155,000) and $230,000 (up from $220,000), respectively.
- The annual limit for defined contribution plans (for example, 401(k) plans, profit-sharing plans and money purchase plans) is increased to $70,000, up from $69,000.
- The annual compensation limit (applicable to many retirement plans) is increased to $350,000, up from $345,000.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $7,500. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies to participants ages 60-63; these participants can contribute up to $11,250 starting in 2025 (instead of $7,500).
The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs and claim the Saver’s Credit (also known as the Retirement Savings Contributions Credit) also increased for 2025.
More Information
The IRS’s news release contains more details on the cost-of-living adjustments for 2025.
Qualified Retirement Plan Limits - 2024 and 2025
The following chart shows the qualified retirement plan limits that apply for 2024 and 2025.
Links & Resources
- IRS Notice 2023-75 – 2024 retirement plan limits
- IRS Notice 2024-80 – 2025 retirement plan limits
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2024 Zywave, Inc. All rights reserved.
