Contributed by: Robert Ingram, CFP®
The IRS has recently announced the annual contribution limits for retirement plans and IRA accounts in 2025. And while the increases to most of the limits are modest, there are some notable increases. In particular, the legislation Setting Every Community Up for Retirement Act of 2022 (SECURE Act 2.0) adds some special contribution limits starting in 2025. Here are some of the adjustments to contribution limits and income eligibility limits for some contributions that you should keep on your radar as you plan your savings goals and targets for the New Year.
Employer retirement plan contribution limits (401k, 403b, most 457 plans, and Thrift Saving):
$23,500 annual employee elective deferral contribution limit (increases $500 from $23,000 in 2024)
$7,500 extra "catch-up" contribution if age 50 and above (remains the same as in 2024)
Total amount that can be contributed to a defined contribution plan, including all contribution types (e.g., employee deferrals, employer matching, and profit sharing), will be $70,000 or $77,500 if age 50 and above (increased from $69,000 or $76,500 for age 50+ in 2024)
*SECURE Act 2.0 contribution limit change
Under a change made in SECURE ACT 2.0, starting in 2025, there will be a higher catch-up contribution limit for employees aged 60, 61, 62, and 63 who participate in the above plans.
$11,250 is the "catch-up" contribution for those aged 60, 61, 62, and 63 ($3,750 more than the age 50 and above "catch-up" amount)
Traditional, Roth, SIMPLE IRA contribution limits:
Traditional and Roth IRA
$7,000 annual contribution limit (remains the same as in 2024)
$1,000 “catch-up” contribution if age 50 and above (also remains the same as in 2024)
Note: The annual limit applies to any combination of Traditional IRA and Roth IRA contributions. (i.e., You would not be able to contribute up the maximum to a Traditional IRA and to up the maximum to a Roth IRA.)
SIMPLE IRA
$16,500 annual elective contribution limit (increases $500 from $16,000 in 2024)
$3,500 “catch-up” contribution if age 50 and above (remains the same as in 2024)
*SECURE Act 2.0 also sets a higher “catch-up” contribution limit to a SIMPLE for those aged 60-63)
$5,250 “catch-up” contribution if aged 60, 61, 62, and 63 ($1,750 more than the age 50 and above “catch-up” amount)
Traditional IRA deductibility (income limits):
You may be able to deduct contributions to a Traditional IRA from your taxable income. Eligibility to do so depends on your tax filing status, whether you (or your spouse) is covered by an employer retirement plan, and your Modified Adjusted Gross Income (MAGI). The amount of a Traditional IRA contribution that is deductible is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For example,
Filing Single
You are covered under an employer plan
Partial deduction phase-out begins at $79,000 up to $89,000 (then above this no deduction) compared to 2024 (phase-out: $77,000 to $87,000)
Married filing jointly
Spouse contributing to the IRA is covered under a plan
Phase-out begins at $126,000 to $146,000 compared to 2024 (phase-out: $123,000 to $143,000)
Spouse contributing is not covered by a plan, but the other spouse is covered under a plan
Phase-out begins at $236,000 to $246,000 compared to 2022 (phase-out: $230,000 to $240,000)
Roth IRA contribution (income limits):
Similarly to making tax-deductible contributions to a Traditional IRA, being eligible to contribute to a Roth IRA depends on your tax filing status and your income. Your allowable contribution is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For 2025, the limits are as follows:
Filing Single or Head of Household
Partial contribution phase-out begins at $150,000 to $165,000 compared to 2024 (phase-out: $146,000 to $161,000)
Married filing jointly
Phase-out begins at $236,000 to $246,000 compared to 2023 (phase-out: $230,000 to $240,000)
If your MAGI is below the phase-out floor, you can contribute up to the maximum. Above the phase-out ceiling, you are ineligible for any partial contribution.
Eligibility for contributions to retirement accounts like Roth IRA accounts also requires you to have earned income. If you have no earned income or your total MAGI makes you ineligible for regular Roth IRA contributions, other strategies such as Roth IRA Conversions could be good alternatives in some situations to move money into a Roth. Roth Conversions can have different income tax implications, so you should always consult with your planner and tax advisor when considering these types of strategies.
As always, if you have any questions surrounding these changes, don’t hesitate to contact us!
Have a happy and healthy holiday season!
Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.
Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
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