The IRS has announced the contribution limits for 2025, find out what these limits are to make the most out of your retirement savings!
When it comes to retirement savings, knowing the IRS contribution limits set each year can really help boost your benefits. These limits, which affect different retirement accounts, are designed to encourage retirement savings while balancing tax benefits. In 2025, the IRS has updated its contribution limits for accounts like IRAs, Roth IRAs, and 401(k)s.
Find out what are these limits, so you can optimize your retirement contributions towards a financially secure retirement. Also, if you want to check out more financial tips on our website, you can click on this link!
What Are Contribution Limits?
Contribution limits represent the maximum amount you’re allowed to contribute to certain retirement accounts in a given year. These limits are essential for managing retirement savings and tax benefits, as they help taxpayers save in tax-advantaged accounts while ensuring these benefits are balanced across income groups. Each year, the IRS adjusts these limits based on inflation and policy changes, providing opportunities for savers to adjust their contributions and potentially increase their retirement funds.
How Do Contribution Limits Work?
Contribution limits are set by the IRS and vary by account type. For example, IRAs and 401(k)s have different limits due to the nature of each account’s tax advantages. Understanding each limit type allows you to strategically contribute and maximize retirement savings. Here’s how it typically works:
- Traditional IRA Contributions: contributions may be tax-deductible, depending on income and tax-filing status;
- Roth IRA Contributions: made with post-tax income, so contributions aren’t tax-deductible, but earnings grow tax-free;
- 401(k) Contributions: funded by pre-tax dollars, which lowers taxable income, and both employee and employer can contribute;
- Catch-Up Contributions: if you’re 50 or older, you may contribute an additional amount, allowing you to accelerate retirement savings as you approach retirement.
Making the Most of IRS Contribution Limits
- Max Out Employer Matches: many employers match 401(k) contributions up to a certain percentage. Contributing enough to capture the full match effectively provides “free money” for your retirement;
- Utilize Catch-Up Contributions: if you’re over 50, take advantage of catch-up contributions for IRAs and 401(k)s, which enable you to significantly increase your retirement savings;
- Balance Tax Implications: consider your tax situation when choosing between Roth and traditional accounts. Roth IRAs and Roth 401(k)s provide tax-free income in retirement, which can be valuable if you expect to be in a higher tax bracket later;
- Plan for RMDs: Required Minimum Distributions (RMDs) apply to traditional IRAs and 401(k)s but not Roth IRAs. For some, maintaining a Roth IRA may be beneficial to avoid RMDs in retirement.
IRS Contribution Limits for 2025
IRA Contribution Limits for 2025
For 2025, the IRS has set the IRA contribution limit at $7,000 for individuals under 50. However, tax-deductibility may vary depending on your income and whether you or a spouse have access to a workplace retirement plan.
- Traditional IRA Income Limits: for single filers, if you have a MAGI of $89,000 or higher there’s no pretax deduction, while for married couples filing jointly there’s no deduction if the MAGI is $146,000 or higher. If you or your spouse has access to a workplace retirement plan, the tax deduction for contributions phases out based on your income level.
- Contribution Limits for Those Over 50: individuals aged 50 and older can contribute an additional $1,000, known as a catch-up contribution, increasing their limit to $8,000.
Roth IRA Contribution Limits for 2025
Roth IRAs have unique advantages due to their post-tax contribution structure, they provide tax-free income in retirement, making them an appealing choice for many investors, especially those anticipating higher tax rates in retirement. For 2025, Roth IRA contributions are capped at $7,000 for those under 50, with an additional $1,000 allowed for those over 50. However, eligibility for Roth IRA contributions depends on income limits, which the IRS adjusts yearly.
- Income Limits for Roth IRAs in 2025: for single filers with an MAGI the income limit is between $150,000 and $165,000, while for married couples filing jointly it is between $236,000 and $246,000. Above these thresholds, the contribution limit phases out, completely disallowing contributions at higher income levels.
401(k) Contribution Limits for 2025
The 401(k) contribution limit has increased for 2025, reflecting adjustments for inflation. For 2025, employees can contribute up to $23,500 to their 401(k) plans, up from $23,000 in 2024. This limit applies solely to employee contributions and doesn’t include employer contributions.
- 401(k) Catch-Up Contribution Limits: if you’re 50 or older, you can increase your contributions beyond the standard limit. In 2025, this additional amount is $7,500, helping older savers boost retirement savings as they near retirement age. For employees over 50, this catch-up contribution brings the total potential 401(k) contribution to $31,000 in 2025, combining both the regular limit and catch-up allowance. Investors aged 60 to 63 can instead save an extra $11,250, based on changes enacted via Secure 2.0.