Does your organization sponsor a qualified retirement plan for employees? If so, the new calendar year will likely bring inflation-based adjustments to more than one limit or threshold associated with your plan. Here are some important 2025 amounts to be aware of:
Contribution limits to 401(k)s and other defined contribution plans. The annual limit on contributions to 401(k), 403(b) and 457 plans will increase to $23,500 (up from $23,000 in 2024). The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) IRAs will rise to $16,500 (up from $16,000 in 2024).
Catch-up contributions. The annual limit on catch-up contributions for 401(k), 403(b) and 457 plans, which are available to participants age 50 or over, will generally remain at $7,500. However, under a provision of the SECURE 2.0 law, a higher catch-up contribution limit of $11,250 will apply to participants who are 60, 61, 62 or 63 in 2025.
The annual catch-up contribution limit for those age 50 or over with SIMPLE IRAs will generally remain at $3,500. However, also under SECURE 2.0, a higher catch-up contribution limit of $5,250 will apply to SIMPLE IRA owners who are 60, 61, 62 or 63 in 2025.
Contribution limit to Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs). The annual limit for SEP-IRAs will be 25% of an employee’s total compensation, up to $70,000 (an increase from $69,000 in 2024). Catch-up contributions aren’t allowed for these accounts.
SEP-IRA participation. The threshold for determining participation in a SEP-IRA will remain at $750.
Compensation for qualified retirement plan purposes. The annual limit on the maximum compensation that can be taken into account for certain retirement plan contributions and deductions will rise to $350,000 (up from $345,000 in 2024).
Highly compensated employees. The threshold for determining who’s a highly compensated employee will increase to $160,000 (up from $155,000 in 2024).
Key employees. The threshold for defining who’s a key employee under the top-heavy rules will rise to $230,000 (up from $220,000 in 2024).
The retirement savings contributions credit. The adjusted gross income limit for determining whether certain individuals are eligible for this tax credit, which is also known as the saver’s credit, will increase to:
- $79,000 (up from $76,500 in 2024) for taxpayers who are married and filing jointly,
- $59,250 (up from $57,375 in 2024) for those filing as a head of household, and
- $39,500 (up from $38,250 in 2024) for all other taxpayers.
“Control” employees. The amounts for determining who’s a control employee, a classification relevant to valuations of employer-sponsored fringe benefits, will increase to $140,000 (up from $135,000 in 2024) for officers and $285,000 (up from $275,000 in 2024) for other employees.
Social Security taxable wage base. The annual cost-of-living adjustment to the maximum amount of earnings subject to Social Security tax, which is relevant for various benefit purposes, will increase to $176,100 (up from $168,600 in 2024).
As you can see, most of these amounts have been adjusted upward to account for inflation. Carefully note any changes that apply to the plan you sponsor and, as necessary, revise employee communications, plan procedures and administrative forms. Contact us for further information, as well as for help identifying and analyzing costs associated with your plan.
© 2024
