IRS Increases Limits for Pension and Retirement Plan Contributions

The Internal Revenue Service (IRS) on Friday announced a new policy which increases the limits individuals can contribute to their pension and retirement plans.
The agency outlined the new contribution limits as part of its annual cost-of-living adjustments for pension plans and other retirement accounts.
The contribution limit for 401(k) plans will rise in 2025, allowing individuals to set aside up to $23,500, an increase from the $23,000 cap in 2024.
Employees enrolled in 403(b) plans and the federal government’s Thrift Savings Plan will also see their annual contribution limit rise to $23,500 in 2025, up from $23,000 in 2024.
“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,” the IRS said in a statement.
However, the IRS noted in its announcement that the annual contributions to an IRA account will remain at $7,000 for 2025.
“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 IRS said.
Last week, the IRS announced increases to the standard deduction as part of its 2025 inflation adjustments.
The standard deduction for single filers and married individuals filing separately will rise to $15,000 in 2025, a $400 increase from the previous year. Married couples filing jointly will see their deduction increase to $30,000, an $800 increase. Meanwhile, heads of households will benefit from a $22,500 deduction, up by $600.
These changes also come with revisions to the income thresholds for all seven federal tax brackets. Federal income tax brackets determine how much tax you owe on different portions of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income. The result is your taxable income, which is divided into portions taxed at progressively higher rates, depending on the federal tax bracket you fall into.
The Social Security Administration announced last month that benefits will see a 2.5 percent cost-of-living increase beginning in January, raising monthly payments by over $50 on average for millions of recipients.
The first adjusted payments will be made in January 2025 for retirement benefits, and for those who collect Supplemental Security Income (SSI), benefits will be increased in December this year.
This article includes reporting from The Associated Press.