• The IRS announced higher 401(k) contribution limits for 2025.
• Starting in 2025, employees can defer $23,500 in workplace plans, up from $23,000 in 2024.
• Only 14 percent of employees have deferred the maximum amount in their 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report.

The IRS notified us 401(k) contribution limits for 2025.

In its release Friday, the agency increased the employee deferral limit to $23,500, up from $23,000 in 2024. The change applies to workplace plans, including 401(k)s, 403(b)s and most 457 plans, along with federal plans. Economic savings plan.

The IRS also disclosed 2025 recovery contribution limits for savings aged over 50, individual retirement account savings limits and above income thresholds for Roth IRA contributions.

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Beginning in 2025, 401(k) recovery contribution limit it will remain at $7,500 for savings over age 50. But investors aged 60 to 63 can save an extra $11,250 based on the changes implemented through Secure 2.0. Both amounts are above the $23,500 2025 deferral limit.

In 2023, only 14% of employees postponed the maximum amount in 401(k) plans, according to Vanguard’s 2024 How America Saves report, which included data from 1,500 qualified plans and nearly 5 million participants.

Across all plans, the average 401(k) deferral rate was estimated to be 7.4 percent in 2023, according to the same report. The combined savings rateincluding employer contributions, it was 11.7 percent, Vanguard found.

The IRS announcement comes in about a week after the agency unveiled dozens of inflation adjustments for 2025, including federal income tax bracketsbigger capital gains rangesa bigger one exemption from inheritance and gift taxchanges in eligibility for credit for income taxamong others.