401k 2025 Contribution Limit
The 401(k) contribution limit for 2025 is projected to be $23,500 for employee deferrals, an increase from $23,000 in 2024.
What The New 401K Contribution Limit Means For You
The IRS’s anticipated adjustments to 401(k) contribution limits for 2025, driven by inflation and the provisions of the SECURE 2.0 Act, reflect significant opportunities for retirement savings growth. The elective deferral limit for employees contributing to 401(k), 403(b), and 457 plans is set to increase to $23,500, a modest but impactful rise from $23,000 in 2024. This steady increment allows employees to continue contributing more toward their retirement savings without facing increased tax burdens in the current year.
Increases In Catch-Up Contribution
One of the more noteworthy changes, especially for older workers, is the enhancement in catch-up contributions. The SECURE 2.0 Act introduces a special provision for workers aged 60 to 63. Traditionally, employees aged 50 and older were eligible to contribute an additional $7,500 as a catch-up contribution, but starting in 2025, those aged 60 to 63 will see their catch-up contribution limit increase significantly to $11,250. This change provides individuals in that age group a critical opportunity to increase their retirement savings as they approach the end of their careers, helping to offset any shortfalls they may have encountered earlier in their working lives.
Another important aspect of SECURE 2.0 is the provision requiring that certain higher-income employees—those earning over $145,000—make catch-up contributions as Roth contributions beginning in 2025.
This shift reflects a broader trend toward post-tax contributions, offering long-term tax benefits as withdrawals in retirement from Roth accounts are tax-free, which can be advantageous for those anticipating higher income in retirement.
Furthermore, the total contribution limit—the maximum amount that can be contributed by both the employee and employer to a defined contribution plan—will also rise. For 2025, this limit is expected to increase to $71,000, up from $66,000 in 2024.
This adjustment is part of the IRS’s annual review to keep contribution limits aligned with the rising cost of living.
The SECURE 2.0 Act and these IRS adjustments work together to provide greater flexibility and options for individuals to prepare for retirement. Whether you are in the middle of your career or approaching retirement, it is important to understand how these changes affect your ability to save. By increasing both the regular and catch-up contribution limits, the IRS is offering more tools for workers to secure their financial future, especially as they near retirement age.
Takeaway
The 2025 IRS 401(k) contribution limits are increasing to $23,500 for elective deferrals, providing employees more opportunity to grow their retirement savings. Additionally, the catch-up contribution limit for individuals aged 60 to 63 will see a significant boost to $11,250, offering those close to retirement the chance to accelerate their savings. These changes, influenced by the SECURE 2.0 Act, also introduce requirements for higher-income earners to make catch-up contributions as Roth contributions, offering potential long-term tax benefits.
To navigate these new rules effectively and ensure that you’re maximizing your savings potential, professional guidance can make a significant difference. ZAG Consulting is ready to help you assess how these changes impact your financial strategy and provide personalized advice on how to make the most of the updated contribution limits.
