Employees who want to set aside more money for retirement in 2025 will be able to do so. The IRS recently announced retirement plan increases, putting your year-end prep in high gear.
The 401(k) plan salary deferral limit will inch up to $23,500 (currently $23,000).
How about the salary deferral limit for 403(b) plans and most 457 retirement plans? They’ll also see that modest increase to $23,500.
Meanwhile, employees age 50 or older can opt to make 401(k), 403(b) and 457 retirement plan catch-up contributions of up to $7,500 — no change from the current year.
Due to changes brought about by the SECURE 2.0 Act, the catch-up contribution limit is considerably higher than $7,500 for some employees. In fact, individuals who will reach age 60, 61, 62 or 63 next year will be able to contribute $11,250.
The Secure 2.0 Act also said that once employees’ wages hit a certain amount, catch-up contributions to their employer-sponsored retirement plans would need to be made to Roth accounts. That threshold will remain $145,000. For 2025, employers would look back to employees’ wages in 2024.
IRS announced additional cost-of-living adjustments for 2025, including changes applicable to defined contribution (DC) and defined benefit (DB) plans.
- The limit on additions to DC plans will be $70,000 (up from $69,000).
- Meanwhile, the maximum benefit for DB plans will increase to $280,000 (currently $275,000).
Other Retirement Plan Numbers You Need
The IRS included more updates in Notice 2024-80. Here are the details:
Employers that offer SIMPLE retirement accounts should note that elective deferrals will max out once they hit $16,500 (bumping up from this year’s $16,000).
The limit on catch-up contributions to SIMPLE plans for individuals age 50 or over won’t budge from $3,500. The Secure 2.0 Act provides for higher limits for individuals who will reach the age of 60, 61, 62 or 63 — that amount in 2025 will be $5,250. For certain applicable plans, the limit will be $3,850, unchanged from 2024.
No change to the amount that employees can contribute to an individual retirement account — it’ll be $7,000. That goes up by $1,000 for employees who have reached age 50.
As for simplified employee pensions, the compensation threshold hasn’t moved from $750.
Also, the annual compensation limit under Sec. 401(a)(17), among other sections, has been set at $350,000. That’s climbing up from $345,000.
The limit is higher for eligible participants in certain governmental plans. These are retirement plans that under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan to be taken into account. The numbers have increased from $505,000 to $520,000.
Also note these changes found in the IRS notice, which you’ll need for some of your nondiscrimination tests:
- limit for a “key employee” in a top-heavy retirement plan under IRC Sec. 416(i)(1)(A)(i) will increase to $230,000 (from $220,000)
- limit for a “highly compensated employee” under IRC Sec. 414(q)(1)(B) will go up to $160,000 (now $155,000)
- compensation amount for a “control employee” for fringe benefit valuation under Income Tax Regulations Sec. 1.61-21(f)(5)(i) will rise to $140,000 (currently $135,000), and
- compensation amount under Sec. 1.61-21(f)(5)(iii) will jump up to $285,000 (this year, it’s set at $275,000).
