The Internal Revenue Service published 2025 Cost-of-Living Adjustments (COLA) in Notice 2024-80 on November 1, 2024.
The COLA increases will become effective on January 1, 2025, and impact many aspects and types of retirement plans as well as Individual Retirement Accounts (IRAs).
Retirement Plan Highlights
The elective deferral limits for 401(k), 403(b) and most 457 plans increased to $23,500 for 2025 compared to $23,000 in 2024.
The catch-up contribution limit for 401(k), 403(b) and most 457 plan participants who are age 50 or older remains $7,500 for 2025. Therefore, plan participants who are 50 and older can contribute up to $31,000 starting in 2025.
The SECURE 2.0 Act’s provision regarding enhanced catch-up contributions will become effective in 2025 as well. Individuals who attain age 60, 61, 62, or 63 in the 2025 calendar year are eligible for an enhanced catch-up contribution of $11,250.
The annual contribution limit for 401(k) plans and 403(b) plans, which includes both employee deferrals and employer contributions (e.g., match and/or profit-sharing contributions), increased to $70,000 in 2025, compared to $69,000 in 2024.
Note that neither catch-up contribution types are included in the annual contribution limit of $70,000, so a participant who is eligible for traditional catch-up contributions could have their 401(k) or 403(b) plan funded with up to $77,500 (or $81,250, if eligible for enhanced catch-up contributions) in 2025, assuming the plan is designed to accomplish as much and otherwise passed IRS required annual nondiscrimination tests.
Individual Retirement Account (IRA) Highlights
The limits for annual contributions to an IRA and catch-up contributions remain unchanged at $7,000 and $1,000, respectively, for 2025.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)
Here are the adjusted gross income (AGI) phase-out ranges in 2025 for traditional IRA contribution purposes:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $79,000 to $89,000, up from $77,000 to $87,000 in 2024.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $126,000 to $146,000, up from $123,000 to $143,000 in 2024.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $236,000 and $246,000, up from $230,000 and $240,000 in 2024.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000 in 2024. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low-to-moderate-income workers is $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for singles and married individuals filing separately, up from $38,250.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000 in 2024.
Additional changes made under SECURE 2.0 are as follows:
- The limitation on premiums paid with respect to a qualifying longevity annuity contract to $200,000 in 2024. For 2025, this limitation increases to $210,000.
- Added an adjustment to the deductible limit on charitable distributions. For 2025, this limitation is increased to $108,000, up from $105,000 in 2024.
- A deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity is $54,00 in 2025, up from $53,000 in 2024.
- The prior year annual compensation limitation under section 45E(f)(2)(C) for employees excluded from the calculation of the additional small employer pension plan startup cost credit for certain employer contributions is $105,000.
For these and other retirement-related cost-of-living adjustments for 2024, please click here, or visit www.sdretirementsolutions.com.
About Schneider Downs Retirement Solutions
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Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
