the staff of the Ridgewood blog
Ridgewood Nj, the IRS has just released new 401(k) contribution limits for 2025, bringing some exciting news for retirement savers. Beginning in the new year, the maximum annual employee contribution will increase to $23,500, a slight boost from the 2024 limit of $23,000. This adjustment applies across various workplace retirement plans, including 401(k)s, 403(b)s, most 457 plans, and the federal Thrift Savings Plan.
Catch-Up Contributions and IRA Changes for 2025
For savers age 50 and over, the catch-up contribution limit will remain at $7,500 for most plans. However, those between the ages of 60 and 63 will now be eligible to contribute an additional $11,250 above the standard limit, thanks to the Secure 2.0 Act. This unique provision aims to allow older savers nearing retirement to bolster their savings even further.
The IRS also announced higher income thresholds for Roth IRA contributions and raised limits for individual retirement accounts (IRAs), giving savers more flexibility to maximize their retirement contributions across different account types.
Current Trends in 401(k) Savings
While the opportunity to save more is growing, only a small percentage of employees are currently maxing out their 401(k) contributions. According to Vanguard’s 2024 How America Saves report, only 14% of employees deferred the maximum amount to their 401(k) in 2023. Across the plans analyzed, which cover 1,500 qualified plans and nearly 5 million participants, the average 401(k) deferral rate was 7.4%. With employer contributions factored in, the combined savings rate averaged 11.7%.
IRS Rounds Out Inflation Adjustments for 2025
The increase in retirement contribution limits comes just a week after the IRS announced a wide range of other inflation adjustments for 2025. These include updated federal income tax brackets, capital gains brackets, and expanded estate and gift tax exemptions, along with adjustments to eligibility thresholds for the earned income tax credit.
Why This Matters for Your Financial Goals
These updates mean there’s more room to save for retirement, potentially helping to offset inflation and rising costs. For employees hoping to reach financial independence, maxing out contributions and utilizing catch-up options are effective strategies to build a robust retirement nest egg. With these new IRS guidelines, 2025 could be the perfect time to take advantage of these increased limits and plan for a more financially secure future.
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