As we begin 2025, it's essential for individuals planning for retirement to stay informed about the changes in contribution limits for various retirement plans. The Internal Revenue Service (IRS) periodically adjusts these limits, and the upcoming changes may significantly impact your retirement planning strategy. In this blog, we'll break down the new contribution limits for Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP IRAs, 401(k) plans, 403(b) plans, and 457 plans, along with the catch-up provisions available for those aged 50 and older, including special provisions introduced by the SECURE Act 2.0.
1. Traditional IRA & Roth IRA
For 2025, the contribution limit for both Traditional and Roth IRAs will remain at $7,000 for individuals under the age of 50. For those aged 50 and older, the catch-up contribution limit will remain at $1,000, bringing the total contribution limit to $8,000.
Phase-Out Ranges:
Traditional IRA: The deduction for contributions phases out for single filers with modified adjusted gross incomes (MAGI) between $79,000 and $89,000. For married couples filing jointly, a spouse covered by an employer retirement plan has a phase-out range of $126,000 to $146,000. And a spouse not covered by an employer retirement plan the phase-out range is $236,000 to $246,000.
Roth IRA: The ability to contribute phases out for single filers with MAGI between $150,000 and $165,000. For married couples filing jointly, the phase-out range is $236,000 to $246,000.
2. SIMPLE IRA
The contribution limit for SIMPLE IRAs will rise to $16,500 for employees under 50 in 2025, up from $16,000 in 2024. For those aged 50 and older, the catch-up contribution remains at $3,500, allowing a total contribution of $20,000. SIMPLE IRAs are particularly beneficial for small businesses and self-employed individuals, providing an easy way to save for retirement.
3. SEP IRA
For SEP IRAs, the contribution limits are based on a percentage of income, with a maximum limit of $70,000 for 2025. This is an increase from the 2024 limit of $69,000. There are no catch-up contributions for SEP IRAs.
4. 401(k), 403(b), 457 Plans
In 2025, the contribution limit for these plans will increase to $23,500 for individuals under 50, up from $23,000 in 2024. Those aged 50 and older can take advantage of a catch-up contribution of $7,500, bringing the total contribution limit to $31,000.
SECURE Act 2.0 Special Catch-Up Contributions
Under the SECURE Act 2.0, participants aged 60 to 63 can make additional special catch-up contributions to their 401(k), 403(b) and 457 plans. For 2025, the special catch-up limit is set at $11,250 instead of the over 50 catch up of $7,500. This means that individuals in this age bracket can contribute a total of $34,750.
5. Defined Benefit Plans: The limit on the annual benefit of a Defined Benefit Plan is $280,000
Conclusion
The new contribution limits for retirement plans in 2025, along with the special catch-up contributions introduced by the SECURE Act 2.0 and the updated phase-out ranges, provide an excellent opportunity for individuals to enhance their retirement savings. As these limits increase, it's essential to assess your current retirement strategy and consider maximizing your contributions, especially if you're nearing retirement age.
Lake Tahoe Wealth Management always recommends you consult a CPA or Enrolled Agent (EA). As always, please contact your Lake Tahoe Wealth Management Financial Planner to discuss the optimal method for saving for your future or if you have any questions.
Remember, the earlier you start saving, the more you can benefit from the power of compounding, and the better prepared you'll be for your retirement years.