Having enough saved for retirement is a goal that most Americans fall short of consistently, but with the volatility of the economy, it is important for them, especially those closest to retirement age, to pad their retirement accounts as much as possible to make the transition from a working life to a retired life as smooth as possible. This is why the Internal Revenue Service (IRS) has made some adjustments to retirement contributions, to help those in need of more savings to be able to top up their accounts.
As a first step, the IRS just bumped the annual limit on employee deferrals to $23,500, up from the previous cap of $23,000 for 2024. This increase applies to a range of workplace plans, such as 401(k)s, 403(b)s, government 457 plans, and the federal Thrift Savings Plan.
But for those aged 50 and older, there is a catch-up contribution option which has not been changed and will remain at $7,500, so in total, older employees could potentially put away $31,000 in 2025.
The concern is that, according to the Vanguard’s How America Saves report, in 2023, only 14% of employees maxed out their workplans, and the number is not poised to go un in 2024. The report also mentions that, in plans offering catch-up contributions, only 15% of participants 50 or older took advantage of them.
A new addition for 2025 involves a “super catch-up” option for employees between the ages of 60 and 63, who can contribute up to $11,250, rather than the standard $7,500 catch-up. However, as CPA Richard Pon points out, “Once you hit age 64, you are no longer eligible for a super catch-up contribution and are limited to the regular catch-up contribution amount. Right now, technically, there is no law that says that employers must offer a super catch-up contribution so I believe an employer’s retirement plan must be amended to specifically allow for a super catch-up contribution.”
What are the IRS’s new IRA limits in 2025?
The maximum contribution to an IRA remains $7,000, with an additional catch-up contribution of $1,000 for individuals aged 50 and older, but this should not be your only type of retirement account, diversifying is key for a healthy retirement portfolio. Income limits for contributing to traditional and Roth IRAs, as well as for claiming the Saver’s Credit will be raised in 2025:
- For single taxpayers covered by a workplace retirement plan, the phase-out range rose to between $79,000 and $89,000, from $77,000 to $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 increased to $126,000 to $146,000, from $123,000 to $143,000.
- For an IRA contributor not covered by a workplace retirement plan and married to someone who is covered, the phase-out range is $236,000 to $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 between $0 and $10,000.
As for Roth IRAs, there’s also an adjustment:
- For single filers and heads of household, the income range where Roth IRA contributions phase out is $150,000 to $165,000, an increase from the previous $146,000 to $161,000.
- For married couples filing jointly, the Roth phase-out range now spans $236,000 to $246,000, up from $230,000 to $240,000.
- For those married filing separately, the range is still $0 to $10,000 and doesn’t adjust annually.
The Saver’s Credit, designed to help low- and moderate-income earners, also sees higher income limits for 2025. The maximum income for married couples filing jointly to qualify is now $79,000, up from $76,500. For heads of household, the cap is $59,250 (up from $57,375), and for single filers or married individuals filing separately, the limit is $39,500, increased from $38,250.
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