The IRS recently announced the 2025 dollar limits and thresholds for retirement plans, reflecting cost-of-living adjustments. These changes, effective in 2025, will impact various aspects of retirement savings, including 401(k) contributions, catch-up limits, and eligibility thresholds. Employers should prepare to incorporate these retirement plan limit changes to ensure compliance.
1. Annual Additions to Defined Contribution Plans: Starting in 2025, the limit on annual additions (i.e., contributions) to 401(k) and other defined contribution plans will be $70,000 (up from $69,000), allowing participants to save slightly more within the tax-advantaged structure.
2. Compensation Limit for Contributions and Deductions: The annual limit on eligible compensation for contributions and deductions will be $350,000 (up from $345,000). This applies to 401(k) and other qualified plans, SEPs, and SARSEPs, giving employers a higher cap for contributions based on compensation.
3. Elective Deferral Limits: The annual limit on elective deferrals will increase to $23,500 for 401(k), 403(b), and 457 plans, as well as SARSEPs. For SIMPLE plans and SIMPLE IRAs, the deferral limit will be $16,500.
4. Catch-Up Contributions for 401(k), 403(b), 457 Plans, and SARSEPs: The catch-up contribution limit for those aged 50 and over (excluding individuals aged 60-63) will remain at $7,500. For those aged 60-63, it will be $11,250. Additionally, under the SECURE 2.0 Act, individuals earning over $145,000 will need to make catch-up contributions as Roth contributions starting in 2026, following a two-year administrative transition.
5. Catch-Up Contributions for SIMPLE Plans and SIMPLE IRAs: Catch-up contributions for participants aged 50 and over (excluding those turning 60-63) will remain at $3,500, with an increased limit of $5,250 for those aged 60-63.
6. Highly Compensated Employee (HCE) Threshold: In 2025, the threshold for determining a “highly compensated employee” will be $160,000 (up from $155,000), affecting nondiscrimination testing for retirement plans.
7. Key Employee Threshold: The compensation threshold for identifying “key employees” under top-heavy plan rules will rise to $230,000 (up from $220,000), impacting certain participation requirements.
8. SEP Participation Threshold: The participation threshold for SEPs and SARSEPs will remain at $750.
9. Saver’s Tax Credit Income Limits: For 2025, the upper income limits for the Saver’s Tax Credit (also known as the retirement savings contributions credit) will increase as follows:
- Married Filing Jointly: Up to $79,000
- Head of Household: Up to $59,250
- All Other Filers: Up to $39,50
10: Control Employee Classification: The 2025 thresholds for “control employee” status, relevant for valuing fringe benefits, will be $140,000 for officers and $285,000 for other employees.
Employers should ensure that these new limits are reflected in their retirement plan structures and be prepared to help employees make the most of their retirement savings opportunities. Staying informed on these adjustments will also help employers maintain compliance with IRS guidelines for the 2025 plan year.
You can find out more information on the new retirement plan limits in the IRS 2024-80
