Information About the 2025 IRA and 401(k) Contribution Limit Changes

Every year, the Internal Revenue Service (IRS) makes changes to contribution limits for retirement accounts like 401(k)s and Individual Retirement Accounts (IRAs). This year, the IRS has also announced some other rules that can have an impact on your retirement savings strategy. Therefore, you must stay informed on the new announcements to make the most of these updates. Based on the latest changes, you can adjust your annual contributions for 2025 or rethink your investment plan and move around other assets in your portfolio.

A trusted financial advisor can help you understand how these updates on 401(k) and IRA contribution limits affect your specific retirement goals. This article will also help you understand the latest changes and show you how they might influence your investment strategy so you can stay ahead in your retirement planning.

What are the new IRA contribution limits for 2025?

The contribution limits for IRAs in 2025 remain unchanged from 2024. Individuals under 50 can contribute up to $7,000, while those aged 50 and older can make an additional $1,000 catch-up contribution, bringing their total contribution limit to $8,000. These apply to both Roth and traditional IRA contribution limits.

What are the new 2025 income limits for a traditional IRA?

The eligibility to deduct contributions to a traditional IRA depends on several factors, including your Modified Adjusted Gross Income (MAGI), your tax filing status, and whether you or your spouse are covered by a workplace retirement plan. It is important to note anyone can contribute to a traditional IRA regardless of income. However, the deductibility of those contributions may be limited or unavailable based on your individual situation. It is also important to note that you must have earned income to qualify to contribute to a traditional IRA. Additionally, your IRA max contribution for the year cannot exceed the amount you earned during the year.

Below are the updated MAGI limits for 2025:

1. Single or head of household covered by a retirement plan at work

If your MAGI is $79,000 or less, you are eligible for a full deduction on your traditional IRA contributions.
For MAGI greater than $79,000 but less than $89,000, you qualify for a partial deduction.
If your MAGI is $89,000 or more, you cannot claim any deduction for your contributions.

2. Married filing jointly where both spouses are covered by retirement plans

If you and your spouse file jointly and your MAGI is $126,000 or less, you are eligible for a full deduction.
For MAGI between $126,000 and $146,000, you qualify for a partial deduction.
If your MAGI is $146,000 or more, you are not eligible to claim a deduction.

3. Married filing jointly where only your spouse is covered by a retirement plan

If only your spouse is covered by a retirement plan at work, and your MAGI is $236,000 or less, you can claim a full deduction for your contributions.
For MAGI between $236,000 and $246,000, you qualify for a partial deduction.
If your MAGI is $246,000 or more, you are not eligible for a deduction.

4. Married filing separately where you or your spouse are covered by a retirement plan

If you file separately and your MAGI is less than $10,000, you are eligible for a partial deduction.
For a MAGI of $10,000 or more, you cannot claim any deduction.
For individuals or couples who are not covered by an employer plan or who are married to someone without a workplace retirement plan, the deduction limits do not apply.

What are the new 2025 income phase-out limits for Roth IRAs?

While the Roth IRA max contribution limits have not changed for 2025, there have been other changes made to these accounts that you must know. The IRS has updated the income phase-out ranges, which determine eligibility for contributing to a Roth IRA. Here’s how it can impact you based on your tax filing status:

1. Single filers

For single filers in 2025, the income phase-out range has increased to $150,000 – $165,000, up from $146,000 – $161,000 in 2024.
If your income is below $150,000, you can make a full contribution of $7,000 or $8,000, depending on your age.
If your income is between $150,000 and $165,000, your contribution amount will be reduced based on IRS guidelines.
If your income exceeds $165,000, you are not eligible to contribute to a Roth IRA.

2. Heads of household

The income phase-out range for heads of household in 2025 is also $150,000 – $165,000, the same as the range for single filers.
If your income is less than $150,000, you can contribute the maximum allowed.
If your income falls between $150,000 and $165,000, your contribution amount will be reduced.
If your income exceeds $165,000, you will not be eligible to contribute to a Roth IRA.

3. Married couples filing jointly

For married couples filing jointly, the income phase-out range has risen to $236,000 – $246,000, up from $230,000 – $240,000 in 2024.
Couples with a combined income below $236,000 can contribute the full amount.
If your combined income is between $236,000 and $246,000, your contributions will be reduced.
Couples with an income exceeding $246,000 are not eligible to contribute to a Roth IRA.

4. Married filing separately if you lived with spouse at any time during the financial year

For married couples filing separately, the income phase-out range is the same in 2025 as in 2024.
If your income is less than $10,000, your contribution will be reduced based on IRS guidelines.
If your income is $10,000 or more, you will not be eligible to contribute to a Roth IRA.

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What are the new 401(k) contribution limits for 2025?

The IRS has announced higher 401(k) contribution limits for 2025, which can help you increase your savings if you are participating in these plans.

Standard max 401(k) contribution: For 2025, the standard contribution limit for employees contributing to a 401(k) plan will rise to $23,500, up from $23,000 in 2024.
Maximum contribution to 401(k) through catch-up contributions for ages 50 and older: The catch-up contribution limit for individuals aged 50 and older remains at $7,500. Participants in this age group can contribute a total of $31,000 to their 401(k) plans in 2025.
401(k) maximum contribution through catch-up contributions for ages 60–63: Thanks to the SECURE 2.0 Act, participants aged 60 to 63 can make even larger catch-up contributions starting in 2025. This enhanced catch-up contribution limit is $11,250, much higher than the general $7,500 catch-up amount. With the new limit, the max contribution to 401(k) for individuals in this age group increases to a total of $34,750 in 2025. This is approximately a 14% increase in total contribution capacity compared to 2024.

These limits apply not only to 401(k) plans but also to most 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan.

Saver’s credit limits for 2025

The saver’s credit is also known as the retirement savings contribution credit. This is a tax benefit that helps low- to moderate-income individuals save for retirement. The non-refundable tax credit can be worth up to $1,000 for individual taxpayers and up to $2,000 for those who file jointly as a couple. The credit is offered to those who make eligible contributions to retirement accounts like IRAs or employer-sponsored plans such as 401(k)s.

If you meet certain criteria, the saver’s credit can help you lower your taxes by using a percentage of your contributions as a credit against your tax bill. To qualify for the credit, you must be at least 18 years old by the end of the year, not be claimed as a dependent by someone else, and not be a full-time student. Additionally, you must contribute to a retirement account, and your Adjusted Gross Income (AGI) must fall within the specified income limits set by the IRS each year.

For the tax year 2025, the income limits for the saver’s credit have increased slightly from 2024. Here are the updated limits for eligibility:

Married filing jointly: The AGI limit for eligibility is $79,000.
Head of household: The AGI limit for eligibility is $59,250.
All other filing statuses: The AGI limit for eligibility is $39,500.

In comparison, the income limits for 2024 were:

Married filing jointly: $76,500
Head of household: $57,375
All other filing statuses: $38,250

The saver’s credit provides a percentage of your contributions as a credit, and the rate depends on your income level and filing status. The credit ranges from 10% to 50% of your retirement contributions, up to a maximum credit of $1,000 for individuals or $2,000 for married couples filing jointly. The percentage you receive is based on where your income falls within the specified limits. For example, those with lower incomes will receive the highest credit rate, while those at the upper end of the income limits will receive a lower percentage. Having said that, it is important to contribute as much as you can to your retirement accounts to maximize the benefits of the saver’s credit.

How to make the most of these changes in 2025?

Here are some steps you can take to ensure your retirement strategy aligns effectively with these changes:

Maximize your contributions to IRAs and 401(k)s: You must aim to contribute the full $7,000 to an IRA if you are under 50 or $8,000 if you are 50 or older. If eligible, you can contribute to both a traditional IRA and a Roth IRA and diversify your portfolio. For 401(k)s, you can increase your contributions to take full advantage of the new $23,500 standard limit. There is a jump from last year, and if you are aged 50 or older, you can leverage the $7,500 catch-up contribution to save a total of $31,000. People between the ages of 60 and 63 may also make the most of the new catch-up contribution limit. If you are in this age bracket, the new $11,250 enhanced catch-up limit allows a total contribution of $34,750. This can be an excellent opportunity to increase your retirement savings and make up for any lapses in previous years. Moreover, maximizing your 401(k) contributions can also offer you higher employer matches, which can further enhance your retirement savings.
Use IRAs wisely: Understanding how much of your traditional IRA contributions are deductible based on your MAGI is important. If your deductions are phased out, you can still consider using a Roth IRA instead. The 2025 Roth IRA contribution limits are the same as 2024, allowing you to contribute up to $7,000 or $8,000, based on your age. Additionally, Roth IRAs offer the benefit of tax-free withdrawals in retirement. As most of your other income sources are going to be taxed in retirement, optimizing your Roth IRA can be an effective way to balance out your tax liabilities later. However, you must evaluate your income and know how the updated phase-out income ranges impact you.
Engage with a financial advisor: If you are uncertain about how the new contribution and income limits apply to you, you can consider hiring a financial advisor. These updates do not just impact the investments within your retirement accounts. They can also shape your entire retirement strategy. For example, if your budget is tight, you might need to decide whether you need to stretch to meet the new 401(k) max contribution limit of $34,750 or direct that extra money into another investment vehicle. The right choice depends on your goals, risk tolerance, and retirement timeline. A financial advisor can guide you through these decisions and help you create a plan that works for you.

To conclude

While the IRA contribution limits have not changed, the increased 401(k) limits present an excellent opportunity to save more, particularly for older age groups who can benefit from higher catch-up contributions. These increased contributions can be a game-changer as you approach retirement and allow you to boost your savings significantly. Since retirement accounts offer tax advantages, the benefits of maximizing your contributions are even greater. However, consulting a financial advisor can help you fully understand how these new limits, income thresholds, and the saver’s credit apply to your unique situation.

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