If you’re working on your retirement savings strategy for 2025 you need to know exactly how much you can sock away. The Internal Revenue Service routinely adjusts the annual contribution limits for different types of retirement plans, including 401(k)s and IRAs. For 2025 there are a few key changes that take effect. Here’s a rundown of what you can expect if you’re looking to max out your retirement plan this year.
Consider working with a financial advisor as you create or update a retirement plan.
Defined Contribution Plan Contribution Limits
A defined contribution plan is any plan that allows you to chip in money towards your own retirement. Your employer can also make contributions but they’re not required to. Defined contribution plans include 401(k)s, 403(b) accounts, 457 accounts and the federal Thrift Savings Plan.
For 2025, the limit on contributions for these types of plans is $23,500, $31,000 for those 50 and older. Additionally, starting in 2025 you can take the extra contributions from $7,500 to $11,250 for those aged 60 – 63. Before making contributions, make sure you know how much you might need to save for retirement.
Defined Benefit Plan Contribution Limit
Defined benefit plans may allow employee contributions but they’re typically funded solely by the employer. This type of retirement plan is designed to pay you a specific amount of money once you retire. Examples of this type of plan would be a traditional pension plan or a corporate defined benefit plan.
Your total benefit amount is calculated based on what your employer has put in, your salary at retirement and your years of service. For 2025, the total annual benefit you’re entitled to is the lesser of 100% of your average compensation for your three highest consecutive calendar years or $350,000.
Individual Retirement Account Contributions
The contribution limits for traditional and Roth IRAs are $7,500 for 2025 and a $1,000 catch-up contribution limit for people who are 50 or over. While these limits are unchanged, the IRS did make some adjustments to the income phase-out limits for Roth IRA contributions.
For tax year 2025, single filers and heads of household with a MAGI from at least $150,000 up to $165,000 can only contribute a reduced amount. If you file single and make equal to or more than $165,000, you cannot contribute to a Roth IRA at all.
For tax year 2025, married couples filing jointly have an income phase-out range of $236,000 up to $246,000. No contributions are allowed if the couple’s MAGI is equal to or more than $246,000. If you’re married, but filing separately, your phase-out range is the same as that of single filers, though it only applies if you and your spouse don’t live together.
SIMPLE and SEP IRA Contributions
If you work for a smaller company or you’re self-employed, you may be able to contribute to a SIMPLE or SEP IRA. Small business owners can use a SIMPLE IRA to contribute money towards retirement for themselves or their employees. Employees can also contribute to the plan through salary deferrals.
An SEP IRA or simplified employee pension allows employers to contribute directly to an IRA on behalf of their employees. You can also set up this type of retirement account if you’re self-employed. For 2025, you can contribute a maximum of $70,000 in a SEP IRA or $15,500 for a SIMPLE IRA in 2025.
Retirement plans offered through your employer can either be defined benefit plans, such as a pension, or defined contribution plans, like a 403(b), 457 or 401(k) plan. If you’re enrolled in any of the above, you can defer up to $23,500 of your salary into your account for 2025. The maximum 401(k) contribution limit also applies to federal employees who participate in the Thrift Savings Plan. This cap doesn’t include employer-matching contributions.
Although your company match is not included in maximum 401(k) contribution limits, the IRS does cap the total sum of your contributions and your employer’s contributions. For 2025, the cap is the lesser of either 100% of employee compensation or $70,000. Note that these caps don’t include catch-up contributions, which can be up to $8,000 for those 50 or older.
Retirement Saver’s Credit
The Retirement Saver’s Credit is a valuable tax incentive designed to encourage low- to moderate-income individuals to save for retirement. This credit can significantly reduce the amount of federal income tax you owe, making it an attractive option for those who qualify.
By contributing to a retirement account such as a 401(k), IRA, or similar plan, eligible taxpayers can receive a credit of up to $1,000 ($2,000 for married couples filing jointly). This initiative not only promotes financial security in retirement but also provides immediate tax relief.
Bottom Line
The government adjusts the annual contribution limits you may take for different types of retirement plans, including 401(k)s, SEPs and IRAs. The IRS has announced adjustments that reflect inflation and aim to encourage more robust retirement savings. For 401(k) plans, the contribution limit will see an increase, allowing individuals to set aside more pre-tax income. This change is particularly beneficial for those nearing retirement age, as catch-up contributions for individuals aged 50 and over will also rise, providing an opportunity to bolster retirement funds significantly.
Tips on Retirement
- When it comes to your retirement you can’t afford to miss out on an opportunity to save. That’s where the insight and guidance of a financial advisor can be so valuable. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Our free retirement calculator will help you determine how much you need to save for retirement.
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