The IRS has unveiled the 2025 cost-of-living adjustments (COLAs) for various retirement plans, offering several increases to contribution limits. These updates are especially beneficial for those looking to boost their retirement savings in the upcoming year. Here’s a breakdown of the most significant changes and what they mean for you.
1. 401(k), 403(b), 457, and Thrift Savings Plan Contribution Limits Rise
For 2025, the contribution limit for 401(k), 403(b), governmental 457, and federal thrift savings plans will increase by $500. The new maximum contribution will be $23,500, up from $23,000 in 2024.
While the base contribution limit increases, the catch-up contribution limit for workers aged 50 and older remains the same at $7,500. However, a key change is related to catch-up contributions for workers aged 60-63. Under the SECURE 2.0 Act, employees in this age group can now contribute up to $11,250, a substantial jump from the previous $7,500.
2. IRA Contribution Limits Hold Steady
The contribution limit for Individual Retirement Accounts (IRAs) remains unchanged at $7,000 for 2025. This is consistent with the limit for 2024. Additionally, the $1,000 catch-up contribution limit for individuals aged 50 and over will also remain the same for 2025.
3. Changes to IRA Deduction Phase-Out Ranges
For those contributing to a traditional IRA, the IRS has adjusted the income phase-out ranges, which can impact your ability to deduct contributions, especially if you’re covered by a retirement plan at work. Here are the updated phase-out ranges for 2025:
- For Single Taxpayers: If covered by a workplace retirement plan, the phase-out range increases to between $79,000 and $89,000, up from $77,000–$87,000.
- For Married Couples Filing Jointly: If the spouse making the IRA contribution is covered by a workplace plan, the new phase-out range is $126,000 to $146,000, an increase from the previous range of $123,000–$143,000.
- For Married Couples with One Spouse Covered: If one spouse is covered by a workplace retirement plan but the other is not, the phase-out range increases to $236,000 to $246,000, compared to $230,000–$240,000 in 2024.
4. Roth IRA Contribution Limits Update
Roth IRA contribution limits also see adjustments in 2025. The income phase-out range for Roth contributions will now be:
- For Single Filers and Heads of Household: The phase-out range increases to $150,000 to $165,000, up from $146,000–$161,000 in 2024.
- For Married Couples Filing Jointly: The phase-out range rises to $236,000 to $246,000, compared to $230,000–$240,000 last year.
These changes provide some flexibility for higher earners to contribute to Roth IRAs.
5. Savers Credit Income Limits Increase
The income limits for the Saver’s Credit, which helps low- and moderate-income individuals save for retirement, have also been adjusted. For 2025, the income limits are:
- Married Couples Filing Jointly: The income limit increases to $79,000, up from $76,500 in 2024.
- Heads of Household: The income limit increases to $59,250, up from $57,375.
- Single Filers and Married Individuals Filing Separately: The limit rises to $39,500, compared to $38,250 in 2024.
6. SIMPLE Plan Contribution Limits Up
For individuals contributing to a SIMPLE retirement plan, the contribution limit will rise to $16,500 in 2025, an increase from $16,000 in 2024.
These updates from the IRS provide valuable opportunities for individuals to contribute more to their retirement accounts in 2025. Whether you’re looking to save more in a 401(k), IRA, or SIMPLE plan, or hoping to take advantage of catch-up contributions or the Savers Credit, it’s a good time to review your retirement savings strategy and make the most of these new limits. As always, consult with a tax advisor to ensure you’re maximizing your contributions in line with your financial goals.
