2025 IRS Limits on Retirement Plan Benefits and Compensation

By Andrew Cook, CFP®, AIF®

As published in IRS News Release IR-2024-285, Nov. 1, 2024.

For more information about retirement plan limits, please contact your plan advisor, or click  IRS Notice 2024-80

Highlights of changes for 2025

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $23,500. The catch-up contribution limit for employees aged 50 and over who participate in these plans remains $7,500. The limitation regarding SIMPLE retirement accounts for 2025 has increased to $16,500 and the age 50-or-older catch up is $3,750.  The higher catch-up limit of $5,250 will be available for SIMPLE IRA participants turning 60, 61, 62 or 63 by the end of the calendar year, only if your plan allows for catch-ups in the first place.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2025:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $79,000 to $89,000, up from $77,000 to $87,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $126,000 to $146,000, up from $123,000 to $143,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $236,000 and $246,000, up from $230,000 and $240,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) is $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for singles and married individuals filing separately, up from $38,250. 

Key limit increased

The limit on annual contributions to an IRA remains $7,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains unchanged at $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2025 are in IRS Notice 2024-80, available on IRS.gov.

Planning strategies 

Individual IRAs and Roth IRAs can be funded up until your tax filing deadline (not including extensions). Typically, funding employer sponsored plans (via payroll deductions) must occur by 12/31.  However, if you are a business owner or self employed, you may be elligible to fund a company sponsored plan known as a Simplified Employee Pension (SEP). Historically, a SEP was the only employer sponsored plan that could be set up after 12/31, with a funding deadline of your extended tax filing deadline.

Effective for 2020 and later taxable years, the SECURE Act allows all qualified plans to be established up until the employer’s tax filing due date, plus extensions if applicable. The deadline is now consistent with long-prescribed deadlines for establishing SEP plans. Because deferral contributions cannot be made on income already received, the retroactive effective date does not apply to a plan’s elective deferral feature.

If one qualifies, he/she can fund both their employer sponsored plan and an individual retirement account in the same tax years. If you are over the contribution limits to fund individual deductible IRAs or Roth IRAs, you may want to consider funding a non-deductible IRA and then converting it to a Roth IRA.  Spouses with no earned income can still fund individual retirement accounts based on their spouse’s earnings.

If you are over 70.5 and are charitably inclined, you can make Qualified Charitable Distributions (QCDs) up to $105,000 annually directly from your IRA.  This can be a particularly beneficial strategy if you already must take a Required Minimum Distribution (RMD). A QCD counts towards your RMD and allows you to avoid income tax on that portion of your RMD.

Some planning strategies entail complex reporting and may impact other aspects of your financial life. HHM Wealth is happy to help you identify appropriate tax and investment strategies.

This article is contributed by HHM Wealth Advisors, LLC, a RPAG member firm. Visit www.HHMWealth.com or www.rpag.com.  Neither HHM Wealth nor RPAG are in the business of providing legal advice with respect to ERISA or any other applicable law. The materials and information do not constitute, and should not be relied upon as, legal advice. The materials are general in nature and intended for informational purposes only.