IRS Announces 2025 Inflation Adjustments for Retirement Contributions

The Internal Revenue Service (IRS) has released the inflation adjustments for retirement account contributions for the 2025 tax year. These changes are designed to help individuals maximize their retirement savings by accounting for cost-of-living increases.

Key Adjustments for 2025

• 401(k), 403(b), and Federal Thrift Savings Plan Contributions: The annual contribution limit has increased to $23,500, up from $23,000 in 2024. This adjustment allows employees to allocate more of their pre-tax income toward retirement savings.

  
  

• Catch-Up Contributions for Ages 50 and Over: For individuals aged 50 and above, the catch-up contribution limit remains at $7,500. However, a significant change applies to those aged 60 through 63:

  • Enhanced Catch-Up Contributions for Ages 60-63: Starting in 2025, individuals within this age bracket can make a catch-up contribution of up to $11,250, allowing for a total contribution of $34,750 when combined with the standard limit. This provision aims to help those nearing retirement accelerate their savings.

    
    

• Individual Retirement Accounts (IRAs): The annual contribution limit for both traditional and Roth IRAs remains unchanged at $7,000. The additional catch-up contribution for individuals aged 50 and over also remains at $1,000.

  
  

• Income Phase-Out Ranges for IRA Contributions: The income thresholds determining eligibility for deductible contributions to traditional IRAs and for contributing to Roth IRAs have been adjusted for inflation:

  • Traditional IRA Deductibility:

    • Single Filers Covered by a Workplace Retirement Plan: The deduction phases out between $79,000 and $89,000 of modified adjusted gross income (AGI), up from $77,000 to $87,000.

    • Married Couples Filing Jointly:

      • For the spouse making the IRA contribution and covered by a workplace plan, the phase-out range is $126,000 to $146,000, up from $123,000 to $143,000.

      • For an IRA contributor not covered by a workplace plan but married to someone who is, the phase-out range is $236,000 to $246,000, up from $230,000 to $240,000.

  • Roth IRA Eligibility:

    • Single Filers and Heads of Household: The income phase-out range is $140,000 to $155,000, up from $138,000 to $153,000.

    • Married Couples Filing Jointly: The phase-out range is $218,000 to $228,000, up from $215,000 to $225,000.

These adjustments reflect the IRS's commitment to helping individuals maintain the purchasing power of their retirement savings amidst inflationary pressures. It's advisable for taxpayers to review their retirement contribution strategies in light of these changes and consult with financial advisors to optimize their savings plans.