The Internal Revenue Service (IRS) governs various aspects of retirement plans, including dollar limitations on benefits and contributions. The limits are reviewed annually to adjust for cost-of-living increases. These adjustments affect not only qualified retirement plans but also deferred compensation plans and IRAs. Similar procedures used for Social Security Act benefit adjustments are also utilized for the retirement contribution limit adjustments.
For 2025, several key changes in these limits can impact individuals and small businesses. In this article, we will provide an overview of the 2024-2025 contribution limits and COLAs under the Internal Revenue Code.
2025 Contribution Limits:
Qualified Plans (includes Solo 401(k))
Defined Contribution Plans: The annual contribution for 2025 increases from $69,000 to $70,000.
Additional Adjustments for 2025
Elective Deferrals: The limitation on the exclusion for elective deferrals increases from $23,000 to $23,500.
Annual Compensation Limit: The annual compensation limit increases from $345,000 to $350,000.
Catch-up Contributions: The dollar limitations for catch-up contributions for individuals aged 50 or over in applicable employer plans remain unchanged at $7,500. However, under the Secure 2.0 Act, individuals aged 60, 61, 62, or 63 will be eligible for increased catch-up contributions of up to $11,250, providing additional savings opportunities for those approaching retirement
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Individual Retirement Accounts (IRAs):
Adjustments were also made regarding various limits for individual retirement accounts (IRAs) and contribution tax credits.
IRA Contributions: Traditional IRA and Roth IRA contributions stayed the same at $7,000, with an additional $1,000 allowed for individuals aged 50 or over.
Other Roth IRA Adjustments: The adjusted gross income phase-out ranges for Roth IRA contributions will increase for married couples filing jointly, singles, and heads of household (HOH).
Single/HOH: $150,000 - $165,000 in 2025 from $146,000 - $161,000 in 2024
Married filing jointly: $236,000 - $246,000 in 2025 from $230,000 - $240,000 in 2024
Married, filing separate: $0-10,000 in 2024 and 2025
SIMPLE IRA Contributions: Increased from $16,000 to $16,500.
SEP IRA Contributions: Increased from $69,000 to $70,000.
Qualified Charitable Distributions: The limit for qualified charitable distributions not includible in gross income rises from $100,000 to $105,000.
Adjusted Gross Income for Contribution Tax Credits
Recent changes to the adjusted gross income (AGI) limitation have increased the availability of tax credits for their contributions. This adjustment indicates a commitment to promote retirement savings by making more taxpayers eligible for the credits. Raising the AGI limitation is intended to motivate a larger portion of the population to save for retirement, ultimately creating financial security and well-being for an expanded group of individuals.
The deduction for taxpayers making contributions to a Traditional IRA is phased out for single individuals and HOH who are active participants in a qualified plan: AGI between $79,000 and $89,000 for 2025 from $77,000 and $87,000 for 2024.
Married couples filing jointly:
if the spouse who makes the contribution is an active participant: AGI is between $126,000 and $146,000 for 2025 from $123,000 and $143,000 for 2024.
If the IRA contributor is not an active participant and is married to someone who is an active participant: AGI is between $236,000 and $246,000 for 2025 from $230,000 and $240,000 for 2024.
A married individual filing separately which is an active participant: AGI remains between $0 to $10,000.
Conclusion:
Understanding these cost-of-living adjustments and contribution limits under the Internal Revenue Code is crucial for retirement planning. The 2025 changes may impact individuals and organizations participating in qualified retirement plans and IRAs. To take control of your financial future, it is essential to stay informed about these adjustments to make informed decisions about your retirement contributions and benefits.
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