IRS Announces Retirement Plan Changes

IRS Announces Retirement Plan Changes

December 11, 2024

Your max contributions to 401(k) plans for 2025 increase to $23,500, up from $23,000 for 2024, according to the IRS. The tax agency also issued technical guidance regarding cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025.

The limit on annual contributions to an IRA remains $7,000. The IRA catch-up contribution limit for individuals aged 50 and over was amended under the Secure 2.0 Act of 2022 to include an annual cost-of-living adjustment, but remains $1,000 for 2025.

The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan is increased to $23,500 from $23,000. The catch-up contribution limit that generally applies for employees aged 50 and up who participate in these plans remains $7,500 for 2025, raising the overall contribution limit to $31,000 each year starting in 2025. A higher catch-up limit applies for participating employees aged 60, 61, 62 and 63—$11,250 instead of $7,500.

The income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025. If during the year you or your spouse was covered by a retirement plan at work, the deduction to traditional IRAs may be reduced or phased out, until it is eliminated, depending on filing  status and income. If neither of you is covered by retirement plans at work, the phase-outs don’t apply.

Here are the phase-out ranges for 2025:

• For single taxpayers covered by a workplace retirement plan, the phase-out range rises to between $79,000 and $89,000, up from between $77,000 and $87,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range improves to between $126,000 and $146,000, up from between $124,000 and $143,000.
• For an IRA contributor not covered and married to someone who is covered, the phase-out range climbs to between $236,000 and $246,000, up from between $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 between $0 and $10,000.
• The income phase-out for taxpayers making contributions to a Roth IRA is upped to between $150,000 and $165,000 for singles and heads of households 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 isn’t subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
• The income limit for the Saver’s Credit, also know as the Retirement Savings Contribution Credit, for low-to-moderate-income workers is $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of households, up from $57,375; and $39,500 for singles and married folks filing separately, up from $38,250.
• The amount individuals can generally contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000. Secure 2.0 has allowed people to contribute more—the higher amount remains $17,600.
• The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most SIMPLE plans remains $3,500 for 2025. Under a change made in Secure 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Source:  Industry Newsletters ©2024 

This is just a summary of complex provisions. Be sure to discuss your situation with your tax advisor at Larson & Company.  Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.