What are the 2025 retirement contribution limits?
The U.S. Internal Revenue Service (IRS) has yet again revised the contribution limits for 2025, allowing you to save more for the future. If you are under any employer-sponsored retirement plan such as a 401(k), 403(b), or 457(b), you can now defer $23,500 yearly. This shows a very minor increase of $500 over 2024.
These changes are designed to counter the rising expense price along the inflationary line so that your retirement savings maintain their purchasing power.
The new limit of $23,500 for the year will apply to folks putting money into a Federal Thrift Savings Plan as well.
Are IRA contribution limits changing in 2025?
While 401(k)s have increased over time, the maximum limit in IRAs, that is, Individual Retirement Accounts, will remain unchanged. Up to $7,000 can now be contributed in 2025 towards both a traditional and Roth IRA. Sam Taube, an investment writer from NerdWallet, explained that “This year was a little bit different in that they announced a $500 increase to the contribution limit for 401(k)s, but for the first time in a while, they left the IRA limit unchanged.”
While the IRA limits have not changed, however, it is still a very strong savings tool even if there is no workplace plan available to you.
Read more: Why the best retirement advice may be not retiring
How do employer matches affect your contributions?
One thing you might not know is that employer contributions do not count toward your annual contribution limit. For example, if your company offers a match for your 401(k), that extra money is added to your account without eating into the $23,500 limit.
This is why it is a good idea to contribute enough to take full advantage of any match your employer offers. Essentially, it is free money that boosts your retirement savings.
Catch-up contributions for those over 50
If you are 50 or older, the IRS allows you to make catch-up contributions to accelerate your retirement savings. For 2025, the catch-up limit for 401(k) plans has increased to $7,500, meaning you can contribute up to $31,000 if you qualify.
For IRAs, the catch-up contribution limit remains unchanged at $1,000, allowing older savers to contribute up to $8,000 in total.
This extra allowance can make a big difference, especially if you are trying to make up for lost time or prepare for retirement in the next few years.
Should you max out your contributions?
Of course, maxing out your contributions does sound great, but whether it actually will work or not depends on your financial situation. Speaking to a financial advisor will help you know what you would like to change before any changes are made.
Here are some tips to take note of when making contributions:
- If your employer offers a match, contribute enough to take full advantage of it.Â
- If you have extra savings, contribute maximally toward your 401(k) or IRA.Â
- It’s also important to realize here that retirement is, at least ideally, a very long-term goal, and it’s important to balance that goal with other financial needs.
How to start saving for retirement in 2025
Start saving for retirement in 2025 if you have not done so. This is especially useful because contribution limits will surpass the norm, and at that stage, you should apply them toward comprehensive employer benefit programs that provide for such things.
So, whether you have been saving for years or are just starting, these new limits are a great way to plan for the future and save whenever possible.
Retirement saving will be more promising in 2025. But without careful planning, you could miss this opportunity. Use the new IRS limits as a guide to get ahead and ensure your retirement years will be as comfortable as they can be.
