This is the time of the year when the Internal Revenue Service annually announces increases in the limits that apply to Retirement Plans. The increases are built into Tax Law and are based on a prescribed “cost of living” index.
For those who are trying to save more or get better contribution results for their 401k, 403b, Defined Benefit, or Cash Balance Plan, some of the most notable changes for the Plan Year or Tax Year starting in 2025 are:
Employee deferrals to a 401k or 403b Plan have a maximum limit of $23,500. This is $500 more than the 2024 limit.
Catch-up contributions for those age 50 or older have a limit of $7,500, which is unchanged from 2024. However, those who are at least age 60 but not older than 63 in 2025 have a special catch-up limit of $11,250.
The maximum total employee and employer contributions to a 401k or 403b Plan is $70,000 plus, if applicable, the catch-up contribution (making the total $77,500 or $81,250 depending upon age). For 2024, the limit is $69,000 (or $76,500 with the catch-up).
The total compensation (e.g., gross W-2 wages) or “modified” net self-employment income that may be taken into account for Plan purposes is $350,000, compared to $345,000 for 2024.
The compensation threshold for determining who is a “highly compensated employee” (HCE) for IRS testing purposes, now is: earning more than $160,000 in 2025 makes an individual a HCE in 2026. The earnings threshold in 2024 to be a HCE in 2025 is $155,000.
The maximum annual benefit that can be paid by a Defined Benefit Plan, or that is used to calculate the maximum annual “principal credit” (i.e., individual benefit or contribution amount) for a Cash Balance Plan, increased $5,000 to $280,000.
ACSI is available to help you learn more about how the new limits impact your Retirement Plan in 2025.
