Dear Bernard,,

Do you put the maximum amount into your IRA or retirement plan each year? If so, there is good news: the funding limits for company-sponsored plans has increased for plan year 2025.

On November 1st of this year, the IRS announced the annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500, up from $23,000.

The limit on annual contributions to an IRA remains $7,000. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment, but remains $1,000 for 2025.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025.

Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025.

However, there is a unique change to catch-up provisions for employees between ages 60 and 63. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for those who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500. Keep in mind, this catch-up limit is for company sponsored retirement plans and not IRAs.

The Secure 2.0 Act also has made provisions for SIMPLE plan participants. Beginning January 1, 2025, you can elect to have Roth SIMPLE contributions, provided your employer selects this option within their plan. The amount that individuals can generally contribute to their SIMPLE retirement accounts is also increased to $16,500, up from $16,000. Pursuant to a change made in SECURE 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts. For 2025, this higher amount remains $17,600.

The catch-up contribution limit that generally applies for employees, aged 50 and over, who participate in most SIMPLE plans remains $3,500 for 2025. Under a change made in SECURE 2.0, a different catch-up limit applies for employees aged 50 and over who participate in certain applicable SIMPLE plans. For 2025, this limit remains $3,850. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Also, don't forget the other side of contributions to your retirement plans. Over the past few years the IRS has allowed Required Minimum Distributions (RMDs) to move from age 70 1/2 to age 73. There have also been changes to the distribution rules for non-spousal retirement plans. While the penalty tax for failing to make these withdrawals has been reduced from 50% to 10%, this is still an avoidable tax with basic planning. There are even provisions for those over age 70 to have their distributions sent directly to a qualified charity, thereby avoiding the need to claim the distribution as income.

This can all be very confusing. If you have questions, I encourage you to give us a call to discuss your concerns. In addition, contacting your tax advisor can also be beneficial.

As always, thanks for reading.

Bernie & Chad