IRS Raises 2025 401(k) Contribution Limits, Increases IRA Income Threshold – Indianapolis News | Indiana weather | Indiana Traffic

(CNN) — Americans will be allowed to save a little more in a tax-deferred 401(k) next year than they did this year unless they turn 60, in which case, for the first time, you’ll be allowed to save much more.

The new contribution limit for 401(k)s and other workplace retirement plans will be $23,500 in 2025, up from $23,000 currently, the Internal Revenue Service said Friday.

However, the IRS has not increased the limit on supplemental contributions—the extra amount of money that people age 50 and older can contribute annually to tax-advantaged plans such as 401(k)s, 403(b)s, 457 plans and the Federal Thrift Thrift Plan. government. The additional contribution limit will remain the same at $7,500.

Taken together, however, this means that anyone turning 50 next year will be able to accumulate up to $31,000 in their retirement savings, and those savings will not be subject to income taxes in 2025.

But if you turn 60, 61, 62 or 63, thanks to a provision of the Secure 2.0 retirement law, your contribution limit will be even higher for the first time next year. The IRS said the amount would be set at $11,250, or 150% of the total catch-up reserve amount. This means people in this age group can save up to $34,750.

Now for some reality: Most people don’t max out their 401(k) savings, regardless of the applicable contribution limit.

In its 2024 How America Saves report, Vanguard found that only 14% maxed out their 401(K) savings in 2023. and accumulated significantly larger account balances,” the report said.

However, the fact remains that until the U.S. pension system is reformed to better provide workers with an adequate income in retirement beyond that provided by Social Security, the majority of private sector workers without pensions are will depend on the savings they accumulate through savings plans at work and elsewhere.

Higher Income Thresholds for IRAs

The IRS has not increased contribution limits for individual retirement accounts, known as IRAs. The annual limit next year will remain $7,000, and the catch-up contribution for those age 50 and older will remain $1,000.

But it did increase the revised adjusted gross income thresholds that determine whether you’re eligible to contribute to an IRA on a tax-advantaged basis.

Starting with a Roth IRA—in which your contributions are subject to income taxes in the year you make them, but then generally never again—if you’re single, you can only contribute to a Roth the following year if your AGI is no more than $165,000, starting at $161,000. If you are married and filing a joint return, your AGI must not exceed $246,000. — up from $240,000 this year.

With a traditional IRA, in which your contributions can be deducted in the year you make them and then grow tax-deferred until you take them out in retirement—if you’re single and covered by a work retirement plan location, your modified AGI must not exceed $89,000. , up from $87,000 this year. If you are married filing a joint return and are individually covered by a workplace retirement plan, your joint modified AGI cannot exceed $146,000, down from $143,000. The restrictions are slightly different if your spouse has a work plan but you contribute money to an IRA.

Changes made to savings loan

Low- and moderate-income workers who save something—anything—for retirement may be eligible to claim the Saver’s Credit, which is a dollar-for-dollar reduction in their tax bill.

To qualify next year, the IRS raised the income threshold to $39,500 for single people, up from $38,350 this year; up to $59,250 for heads of household, up from $57,375; and up to $79,000, compared to $76,500 for married couples filing jointly.

Here’s a helpful explanation of how the loan from Fidelity works.