December 4, 2024
Cost-of-Living Adjustments to Retirement Plans and More in 2025
The Internal Revenue Service recently announced contribution and benefit limits for qualified retirement plans effective January 1, 2025. The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan will increase to $23,500, up from $23,000. This limit rose by the standard $500 increment since the current rate of inflation has leveled off over the past few years.
Being that many Americans have inadequate retirement savings, there is a new feature taking effect in 2025 that can provide a boost for older workers. While the catch-up contribution for savers age 50 and older remains unchanged at $7,500, savers age 60 to 63 can contribute even more each year thanks to changes enacted by SECURE Act 2.0.
As of January 2025, savers age 60, 61, 62 and 63 may make a special “super catch-up” contribution. SECURE Act 2.0 did not mandate this feature, so the plan sponsor will have the option to adopt the super catch-up or not. If adopted, this contribution is limited to the greater of $10,000 or 150% of the standard catch-up contribution limit for 2025 and is indexed to inflation. Therefore, the “super” limit for anyone age 60-63 will be $11,250 ($7,500 x 150%). Any saver age 64 and older will revert to the normal catch-up limit of $7,500.
Also introduced in SECURE Act 2.0, starting in 2026, taxpayers who earn over $145,000 in the prior calendar year and want to make catch-up contributions will have to do so with after-tax dollars in a Roth account. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement. Many employers do not currently offer a Roth 401(k) plan and setting them up can take time. Additional guidance from the Treasury and IRS is expected in 2025.
The Social Security Administration (SSA) also announced an increase to key numbers that affect workers and retirees for 2025. The Social Security Wage Base, which is the maximum amount of earnings subject to Social Security tax, will increase by $7,500 to $176,100 in 2025.
For retirees, the SSA announced a 2.5% increase to monthly Social Security and Supplemental Security Income benefits, which is the smallest increase since 2021, reflecting cooling inflation. On average, that translates to approximately $49 more per month for the 72.5 million Americans currently receiving Social Security and Supplemental Income benefits. The monthly benefit check for the average retiree in 2025 will increase to $1,976 ($23,712 annually) according to the Social Security Administration. Further highlighting the importance of personal savings for retirement.
The chart below reflects the key limits, along with other frequently used benefit and compensation items for 2025.
| Retirement Plan Limitations | 2025 | 2024 |
| Annual deferral limit for 401(k), 403(b) and 457(b) plans aka “402(g) limit” | $23,500 | $23,000 |
| Catch-up contribution limit for savers age 50-59 and 64+ in 401(k), 403(b) and 457(b) plans | $7,500
total = $31,000 |
$7,500
total = $30,500 |
| Super catch-up contribution limit for savers age 60-63 in 401(k), 403(b) and 457(b) plans | $11,250
total = $31,000 |
– |
| Annual contribution limit to a defined contribution plan aka “415 limit” | $70,000 | $69,000 |
| Annual compensation limit to a defined contribution plan aka “401(a) limit” | $350,000 | $345,000 |
| Highly Compensated Employee (HCE) compensation definition | $160,000 | $155,000 |
| Officer or Key Employee compensation definition | $230,000 | $220,000 |
| Income subject to Social Security tax (wage base) | $176,100 | $168,600 |
| Annual IRA contribution limit | $7,000 | $7,000 |
| Annual IRA catch-up contribution limit for savers age 50 and older | $1,000 | $1,000 |
| Health Savings Account (HSA) individual contribution limit | $4,300 | $4,150 |
| Health Savings Account (HSA) family contribution limit | $8,550 | $8,300 |
| Health Savings Account (HSA) catch-up contribution limit for savers age 55 and older | $1,000 | $1,000 |
The Retirement Savings Contribution Credit – aka the “Saver’s Credit” – offers low- and middle-income workers who contribute to a retirement plan a tax credit worth up to $1,000 ($2,000 for married couples) when they file their annual tax return. It is a particularly good incentive to get young people to start saving early and assist taxpayers with modest incomes to make their money work harder for them. The credit for 2025 (taxes filed in 2026) is $79,000 for married couples filing jointly; $59,250 for head of household; and $39,500 for singles.
The Saver’s Credit as it exists today is also in for significant changes, particularly with respect to how it will be paid. The SECURE 2.0 Act converts the current tax credit into a government matching program for retirement plan contributions dubbed the “Saver’s Match.” The new Saver’s Match is not effective until 2027, so the existing tax credit will be around for a few more years.
Should you have any questions regarding the various limitations that apply to retirement plans, including some that are not included in the table, please contact our Greenleaf Trust Retirement Plan Division.