The good news is that the amount you and your employees can save for retirement is increasing in 2025, providing a brighter outlook for your retirement savings.

How much can you and your employees contribute to your 401(k)s or other retirement plans next year? In Notice 2024-80, the IRS recently announced cost-of-living adjustments that apply to the dollar limitations for retirement plans and other qualified plans for 2025. With inflation easing, the amounts aren’t increasing as much as in recent years.

401(k) plans

In 2025, the contribution limit for employees participating in 401(k) plans will see a slight increase to $23,500, up from $23,000 in 2024. This change also applies to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan.

For employees aged 50 or over participating in 401(k) plans and other mentioned plans, the catch-up contribution limit will remain at $7,500, the same as in 2024. However, the SECURE 2.0 law introduces a significant change, allowing specific individuals to save more with catch-up contributions starting in 2025. For taxpayers aged 60, 61, 62, or 63, the new catch-up contribution amount will be $11,250.

Therefore, participants in 401(k) plans who are 50 or older can contribute up to $31,000 in 2025. Those aged 60, 61, 62, or 63 can contribute up to $34,750.

SEP plans and defined contribution plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $69,000 to $70,000 in 2025. To participate in an SEP, an eligible employee must receive at least a certain amount of compensation for the year, which will remain $750 in 2025.

SIMPLE plans

In 2025, the deferral limit to a SIMPLE plan will increase to $16,500, up from $16,000 in 2024. The catch-up contribution limit for employees aged 50 or over participating in SIMPLE plans will remain at $3,500. However, under the SECURE 2.0 law, a change will allow employees aged 60, 61, 62, or 63 to make higher SIMPLE catch-up contributions starting in 2025, at $5,250.

Therefore, participants in SIMPLE plans who are 50 or older can contribute $20,000 in 2025. Those aged 60, 61, 62, or 63 can contribute up to $21,750.

Other plan limits

The IRS also announced that in 2025:

• The limitation on the annual benefit under a defined benefit plan will increase from $275,000 to $280,000.
• The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $220,000 to $230,000.
• The limitation used in the definition of “highly compensated employee” will increase from $155,000 to $160,000.

IRA contributions

The 2025 limit on annual contributions to an individual IRA will remain $7,000 (the same as 2024). The IRA catch-up contribution limit for individuals age 50 or older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

Plan ahead

Remember, you’re not alone in this. We’re here to help. If you have any questions about your tax-advantaged retirement plan or want to explore other retirement plan options, don’t hesitate to reach out to me at 856-665-2121.

RJC