The Internal Revenue Service has confirmed the annual contribution cap for 401(k) plans will be increasing next year, going up to $23,500 for the 2025 tax period from $23,000 in 2024.
But the contribution limit for IRAs will remain at $7,000, according to a new IRS notice outlining the new cost-of-living adjustments across various retirement savings accounts.
As per IRS Notice 2024-80, the new 401(k) limit affects employees contributing to a range of retirement savings plans, including 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan. For workers aged 50 and over, the catch-up contribution limit will remain at $7,500 in 2025, allowing those older employees to generally save up to a combined total of $31,000 annually in their workplace retirement accounts starting next year.
For IRAs, the catch-up contribution limit for account holders aged 50 and over is also unchanged at $1,000, despite a SECURE 2.0 Act of 2022 amendment to include an annual cost-of-living adjustment.
The IRS also revised income limits used to determine eligibility for certain retirement-related tax benefits, including deductible contributions to traditional IRAs and Roth IRA contributions.
For traditional IRA contributors, the income phase-out range for single filers covered by a workplace retirement plan has been increased, with eligibility now spanning between $79,000 and $89,000, up from $77,000 to $87,000 in 2024. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the income phase-out range is now between $126,000 and $146,000, up from $123,000 to $143,000.
For cases where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is, the eligibility phase-out has shifted to between $236,000 and $246,000, up from $230,000 to $240,000. The income phase-out for married individuals filing separately who are covered by a workplace retirement plan remains unchanged, staying between $0 and $10,000.
Income phase-out ranges for Roth IRA contributions were also adjusted. For single filers and heads of household, eligibility now falls between $150,000 and $165,000, an increase from the 2024 range of $146,000 to $161,000. Married couples filing jointly will see a new phase-out range of $236,000 to $246,000, compared to $230,000 to $240,000 last year. For married individuals filing separately, the Roth IRA income phase-out remains from $0 to $10,000.
Meanwhile, the phase-out range for married couples filing jointly is now set at $49,500 to $74,250, up from $48,750 to $73,125 in 2024. For heads of household, the range is $37,125 to $55,688, increased from $36,563 to $54,844. Single filers now have a phase-out range of $24,750 to $37,125, up from $24,375 to $36,563.
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