The IRS has announced that the amount of tax-advantaged funds you can stash away for retirement is increasing. In 2025, the amount individuals can contribute to their 401(k) plans will go up to $23,500 — it was $23,000 for 2024.

The announcement relates to cost-of-living adjustments for pension plans and other retirement-related items for fiscal year 2025 (these adjustments are required by law).

Here’s a look at some of the most common plans and what will be different next year:

401(k) and similar plans

As noted, the amount individuals can contribute to their 401(k) plans is $23,500 — this limit applies to employee contributions made to 401(k) plans and similar plans maintained by non-profit and government employers — 403(b), most 457 plans, and the federal government’s Employee Thrift Savings Plan.

The contribution recapture limit that generally applies to employees age 50 and older participating in most 401(k), 403(b), government 457 plans, and the federal Thrift Savings Plan remains $7,500 for 2025 (same as 2024). ). This means that participants in most 401(k), 403(b), government 457 and Federal Thrift Savings Plans who are 50 and older can generally contribute up to $31,000 each year starting with 2025.

Good news for younger seniors, SECURE 2.0 allows a higher catch-up contribution limit for employees age 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 (compared to $7,500 for everyone else).

These are usually pre-tax contributions made to retirement plans by workers. You’re probably already familiar with how it works from the get-go – you check a box on a benefits form that allows you to set aside some of your earnings for retirement. From a tax perspective, the benefit is two-fold: the earnings are not counted against current year income (which lowers your potential tax bill) and increases with deferred tax. When you reach retirement age, withdrawals are taxable as you take the money out — certain exceptions may apply, including money transferred directly to charities.

IRA plans

There is no increase in the annual contribution limit to an IRA — which remains $7,000. The limit applies to the total amount contributed to traditional and Roth IRAs. IRA plans also allow catch-up contributions for people age 50 and older — which remains at $1,000 for 2025, for a total of $8,000 for workers age 50 and older.

With a traditional IRA, contributions are tax-advantaged. If you meet the criteria – that’s where these limits come into play – the contributions will be tax deductible, resulting in a lower tax bill. As with a 401(k) plan, earnings in an IRA grow tax-deferred and are subject to taxation when you make withdrawals.

In addition to contribution limits, phase-outs apply. What this means is that if during the year you or your spouse were covered by a workplace retirement plan, your tax deduction may be reduced or phased out until it is eliminated, depending on your status . of declaration and income. Here are the phase-out ranges for 2025:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $79,000 and $89,000, from between $77,000 and $87,000 in 2024.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $126,000 and $146,000, from $123,000 to $143,000 in 2024 .
• For an individual contributing to an IRA not covered by a workplace retirement plan and married to someone who is, the phase-out range is increased to between $236,000 and $246,000, from between $230,000 and $240,000 in 2024.
• For a married individual filing separately 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 (these numbers do not change as they are not subject to an annual cost of living adjustment).

Importantly, if neither you nor your spouse is covered by a workplace retirement plan, the phase-out does not apply.

Roth IRA plans

When it comes to taxes, Roth IRAs are treated much differently than traditional IRAs. Unlike a traditional IRA, contributions to a Roth IRA are not deductible when made. The top? Qualified withdrawals are usually tax-free, assuming you meet the criteria, including holding the account for five years and being age 59½ or older (some exceptions apply).

As noted above, the limit on annual contributions to an IRA remains $7,000 in 2025 — this limit applies to the total amount contributed to traditional and Roth IRAs.

The income phaseout also applies to Roth IRAs. For 2025, those figures have increased to $150,000 and $165,000 for singles and heads of household, up from $146,000 and $161,000 in 2024. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $161,000. between $230,000 and $240,000 in 2024. And, as with traditional IRAs, the phase-out range for a married individual filing separately and contributing to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

SIMPLE retirement accounts

A SIMPLE IRA plan — SIMPLE stands for Employee Savings Incentive Matching Plan — makes it easy for small businesses that don’t currently sponsor a retirement plan to contribute to an IRA. Contributions to SIMPLE IRA accounts are always 100% owned or owned by the employee.

The amount individuals can contribute to their SIMPLE retirement accounts will increase to $16,500 in 2025, up from $16,000 in 2024. Contribution recapture limit for employees age 50 and older participating in SIMPLE IRA plans an additional $3,500 remains for 2025, bringing total potential contributions for those over 50 to $20,000.

An even higher catch-up contribution limit applies to employees aged 60, 61, 62 and 63 participating in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Thanks to SECURE 2.0, individuals can contribute a larger amount to certain applicable SIMPLE retirement accounts – typically those belonging to small employers with up to 25 employees. For 2025, this higher amount remains at $17,600. A catch-up limit also applies to employees age 50 and older participating in those applicable SIMPLE plans—for 2025, that limit remains $3,850.

Credit for savers

Some taxpayers can claim a tax credit for qualifying contributions to an IRA or employer-sponsored retirement plan. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is for low- and moderate-income workers.

In 2025, the income limits are $79,000 for married couples filing jointly in 2025, up from $76,500 in 2024. The limit increases to $59,250 for head of household in 2025, up from $57,375 in 2024. the amount increases to $39,500 in 2025, up from $38,250.

Defined benefit plans

Defined benefit plans are not as popular as they used to be – they are usually associated with old pensions. However, they are still available to some companies that appreciate the employer deductions available for contributions.

In 2025, the annual benefit limit under a defined benefit plan will increase to $280,000, up from $275,000 in 2024.

QLACs

A qualified longevity annuity contract (QLAC) allows you to convert funds from a qualified retirement plan, such as a 401(k) or IRA, into an annuity. The dollar limit on premiums paid for a QLAC increased to $210,000 in 2025 from $200,000 in 2024.

Qualified charitable distributions

A qualified charitable distribution (QCD) allows you to transfer funds directly from your IRA to a qualified charity. These amounts can be used to meet your required minimum distributions (RMDs) for the year, and the amount donated is excluded from taxable income—you won’t even have to itemize to do it.

The total amount of QCD you can exclude from gross income has increased to $108,000 in 2025, up from $105,000 in 2024.

In addition, as part of SECURE 2.0, you can make a single election for a QCD for a separate interest entity. This amount was originally $50,000, but adjusted for inflation, it will be $54,000 in 2025, up from $53,000 in 2024.

Distributions for victims of domestic violence

Usually, when you make an early withdrawal from your retirement plan, you are subject to an additional 10% tax (an early withdrawal penalty) – unless you qualify for an exception. As part of the SECURE 2.0 Act, there is now an exception for victims of domestic abuse. The exception allows withdrawals of up to $10,000 (indexed for inflation) or 50% of the present value of the plan’s impermissible accrued benefit (accrued accrued benefit), whichever is less. The 2025 adjustment increases the amount from $10,000 to $10,300.

More information

More details on retirement plans cost-0f-life adjustments can be found in the official guide, Notice 2024-80.

Cost of living adjustments, including the official income tax brackets for 2025, can be found Herewhile Social Security cost-of-living adjustments are Here.

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