The Internal Revenue Service announced the contribution limit and many other changes for the IRS 401(k) retirement plan for 2025 in November 2024. The contribution limit determines the income they can contribute to their retirement account in a particular year.
The 2024 contribution cap of $23,000 has been increased by $500 for 2025 as per the inflation adjustment. The retirement account holders need to contribute for a year under the limit, otherwise, there are consequences for overpayment, too.
The limit on contributions and other annual changes is applicable to ensure that high-income earners do not take advantage of the plan to save more for their retirement than an average worker and gain tax credit.
| Retirement Plan | 401(k) |
| Contribution Limit 2025 | $23,500 |
| Catch-up Contribution Limit | Same $7500 |
| Catch-Up Contribution limit for SECURE 2.0 | $11,250 (for age 60 to 63) |
| SIMPLE Contribution limit | $16,500 |
| Phase out Ranges depend | On filing status |
| Over-payment Consequences | Taxes on overpayment |
| Official Website | https://www.irs.gov/ |
401(k) Contribution Limits
Workers can save money for retirement by contributing a percentage of their earnings to individual accounts under the IRS 401(k) retirement plan. The plan has traditional contributions, where the employee contributes with pre-tax income and reduces their taxable income, while the ROTH plan does not have any tax deductions applicable, but the withdrawals are taxable later on.
The agency adjusts or reviews the limits every year to ensure the limits reflect inflation and the SECURE 2.0 Act. The contribution limit for the 2025 year is announced in November 2024, effective from January 2025, under Section 415 as follows:
- The participants who contribute to SIMPLE retirement accounts or elective contributions under 401k SIMPLE plan that are applicable to salary reductions are also increased by $500, from 16,000 to $16,500.
- The limitation for elective contributions made to the deferral-only plan or safe-harbor deferral-only 401(k) plan remains the same, that is $6000, while it’s hiked by $1000 for employees with 50 years of age.
Catch-up Contributions for 50 or over
The agency allows additional opportunities for contribution to the retirement plan to Americans who have reached the age of 50 or older, this additional contribution is termed as Catch-up Contributions. This allows the elderly to save more for their retirement income and secure their retirement.
The participants can check the catch-up contribution limit for the IRS 401 (k) retirement plans:
- The catch-up contribution limit for individuals aged 50 or older who participated in 401k, federal government Thrift Savings plan, or 457 plans remains the same for 2025, that is, $7500.
- However, under the SECURE 2.0, the contribution limit is increased for workers aged 690 to 63 participating in 401(k) or other above-mentioned plans from $7,500 to $11,250.
- The limitation for the applicable employers’ plan contribution in employees’ 401(k) plan of age 50 or over is the same as before, that is, $3,500, whereas for employees, the higher earned contributor is $5250.
2025 Phase-out Ranges
The IRS allows the contributors of the traditional IRA to have the tax benefits through tax deductions that help them reduce their taxes. However, the deduction may be reduced or phased out completely based on the income/spouse’s income or filing status.
The participants should know that the taxpayer or spouse is not covered in any work retirement plan, and the phase-out of the deductions does not apply to them. The US citizens can check out the phase-out plan ranges for this year below, based on the filing status and other conditions:
- The phase-out range for individual taxpayers with occupational retirement plans would be replaced with $79,000 and $89,000 from the earlier range.
- The phase-out range for married people who paid their taxes separately is between $0 and $10,000, as it is independent of COLA.
- Married couples where either spouse has a workplace-sponsored contribution to the IRS and who filed jointly now have phase-out ranges of $126,000 and $146,000 instead of $123,000 and $143,000.
- Now, if your spouse is covered by a workplace retirement plan, but they do not, the phase-out ranges are hiked from the previous $230,000 and $240,000 to $236,000 and $246,000.
Over-payment Consequences
If the 401 (k) retirement plan participants contributed more in the retirement account than the limit in a year, they may have to pay taxes on the excess deferral. If you have over-contributed to the retirement account, you must withdraw the excess deferral limit by 15 April before the tax season of the year ends.
If you do not withdraw the excess contribution, you may have to pay penalties. When filing your income tax return, you might need to use Form 1099-R to record the overcontribution. The 401 (k) retirement plan participants should check the limits annually and try to contribute under the limit.