On November 1, 2024, the IRS announced the Cost of Living Adjustments (COLAs) affecting the dollar limitations for retirement plans for 2025.
In October, the Social Security Administration announced a modest benefit increase of 2.5%. Retirement plan limits also increased over the 2024 limits. COLA increases are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are the highlights from the new 2025 limits:
- The calendar year elective deferral limit increased from $23,000 to $23,500.
- The elective deferral catch-up contribution remains $7,500. This contribution is available to all participants aged 50 or older in 2025. An additional $3,750 is available in 2025 for participants aged 60-63.
- The maximum available dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan increased from $69,000 to $70,000. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases to include catch-up contributions.
- The maximum amount of compensation that can be considered in retirement plan compliance has been raised from $345,000 to $350,000.
- Annual income subject to Social Security taxation has increased from $168,600 to $176,100.
| Annual Plan Limits | 2025 | 2024 | 2023 |
|---|---|---|---|
| Contribution and Benefit Limits | |||
| Elective Deferral Limit | $23,500 | $23,000 | $22,500 |
| Catch-Up Contributions (age 50-59 and over 63) | $7,500 | $7,500 | $7,500 |
| Catch-Up Contributions (age 60-63) | $11,250 | —– | —– |
| Annual Contribution Limit | $70,000 | $69,000 | $66,000 |
| Annual Contribution Limit including Catch-Up Contributions (age 50-59 and over 63) | $77,500 | $76,500 | $73,500 |
| Annual Contribution Limit including Catch-Up Contributions (age 60-63) | $81,250 | $76,500 | $73,500 |
| Annual Defined Benefit Limit | $280,000 | $275,000 | $265,000 |
| Compensation Limits | |||
| Maximum Plan Compensation | $350,000 | $345,000 | $330,000 |
| Income Subject to Social Security | $176,100 | $168,600 | $160,200 |
| Key EE Compensation Threshold | $230,000 | $220,000 | $215,000 |
| Highly Compensated EE Threshold | $160,000 | $155,000 | $150,000 |
| IRA Limits | |||
| SIMPLE Plan Elective Deferrals | $16,500 | $16,000 | $15,500 |
| SIMPLE Catch-Up Contributions | $3,500 | $3,500 | $3,500 |
| Individual Retirement Account (IRA) | $7,000 | $7,000 | $6,500 |
| IRA Catch-Up Contribution | $1,000 | $1,000 | $1,000 |
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
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