IRS Reveals Higher Retirement Plan Limits for 2025

Employees who want to set aside more money for retirement in 2025 will be able to do so. The IRS recently announced retirement plan increases, putting your year-end prep in high gear.

The 401(k) plan salary deferral limit will inch up to $23,500 (currently $23,000).

How about the salary deferral limit for 403(b) plans and most 457 retirement plans? They’ll also see that modest increase to $23,500.

Meanwhile, employees age 50 or older can opt to make 401(k), 403(b) and 457 retirement plan catch-up contributions of up to $7,500 — no change from the current year.

Due to changes brought about by the SECURE 2.0 Act, the catch-up contribution limit is considerably higher than $7,500 for some employees. In fact, individuals who will reach age 60, 61, 62 or 63 next year will be able to contribute $11,250.

The Secure 2.0 Act also said that once employees’ wages hit a certain amount, catch-up contributions to their employer-sponsored retirement plans would need to be made to Roth accounts. That threshold will remain $145,000. For 2025, employers would look back to employees’ wages in 2024.

IRS announced additional cost-of-living adjustments for 2025, including changes applicable to defined contribution (DC) and defined benefit (DB) plans.

• The limit on additions to DC plans will be $70,000 (up from $69,000).
• Meanwhile, the maximum benefit for DB plans will increase to $280,000 (currently $275,000).

Other Retirement Plan Numbers You Need

The IRS included more updates in Notice 2024-80. Here are the details:

Employers that offer SIMPLE retirement accounts should note that elective deferrals will max out once they hit $16,500 (bumping up from this year’s $16,000).

The limit on catch-up contributions to SIMPLE plans for individuals age 50 or over won’t budge from $3,500. The Secure 2.0 Act provides for higher limits for individuals who will reach the age of 60, 61, 62 or 63 — that amount in 2025 will be $5,250. For certain applicable plans, the limit will be $3,850, unchanged from 2024.

No change to the amount that employees can contribute to an individual retirement account — it’ll be $7,000. That goes up by $1,000 for employees who have reached age 50.

As for simplified employee pensions, the compensation threshold hasn’t moved from $750.

Also, the annual compensation limit under Sec. 401(a)(17), among other sections, has been set at $350,000. That’s climbing up from $345,000.

The limit is higher for eligible participants in certain governmental plans. These are retirement plans that under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan to be taken into account. The numbers have increased from $505,000 to $520,000.

Also note these changes found in the IRS notice, which you’ll need for some of your nondiscrimination tests:

• limit for a “key employee” in a top-heavy retirement plan under IRC Sec. 416(i)(1)(A)(i) will increase to $230,000 (from $220,000)
• limit for a “highly compensated employee” under IRC Sec. 414(q)(1)(B) will go up to $160,000 (now $155,000)
• compensation amount for a “control employee” for fringe benefit valuation under Income Tax Regulations Sec. 1.61-21(f)(5)(i) will rise to $140,000 (currently $135,000), and
• compensation amount under Sec. 1.61-21(f)(5)(iii) will jump up to $285,000 (this year, it’s set at $275,000).