2025 Contribution Limits

Speaker 1 (00:00):

Welcome everyone to the Retirement Power Hour. My name's Joe Allaria. This is episode 35, and today I'm going to be talking about contribution limits for 2025. We're going to talk about IRAs, 4 0 1 Ks, simple IRAs, and a few other important tax changes as well. So stay tuned. Again, welcome in everyone to episode 35. This year's changes to 401k, contribution limits IRA, contribution limits, et cetera are a bit more complex than in years past. We've got some new provisions that came from Secure Act 2.0, which I'm going to get into in just a bit. But before we do that, I want to remind all the listeners and viewers you can go to retirement power hour podcast.com if you want to view past shows. But more importantly, if you have questions for your situation, you can click the tab that says, work with me. You can contact us. 

Speaker 1 (01:00):

We'll set up a call and we'll have an introductory conversation, and maybe after you listen to today's show, you may have some questions for yourself. You can also click the submit a question button as well if you just want to type your question in, and we can answer it via email or on a future episode. So let's jump into some of the changes for 2025. Talking about contribution limits, although we're talking about changes, I wanted to bring up IRAs and Roth IRAs, even though the contribution limits will not change in 2025 for IRAs or Roth IRAs. So in 24 you could do 7,000 toward an IRA or a Roth IRA. It's going to be the same in 2025. There's going to be no change there, and the catch up will also not change. If you're 50 or over, you can do another $1,000 again to your IRA or to your Roth IRA. 

Speaker 1 (01:52):

So no changes in terms of the contribution limits there, but there have been some changes to the income phase outs, so I want to cover those just so you're aware of those. If you are trying to make a deductible contribution to an IRA, again, a deductible contribution and you're a single filer, now you are in that phase out from 79,000 to 89,000. 2024 was 77,000 to 87,000. So a slight increase there, and if you want to make a Roth IRA contribution, if you're a single filer, you are now able to make a contribution. If you make up to 150,000, you can make a full contribution, but from 150 to 165,000, that's where that phase out is going to begin for single filers. Again, those numbers are raised a little bit from last year, and let's talk about married couples filing jointly. Same thing on a deductible IRA contribution that phase out is going to be from 126,000 to 146. 

Speaker 1 (02:52):

And if you want to make a Roth IRA contribution, you're a married couple filing jointly. Income must be below 2 36, 230 6,000 to make a full contribution. Otherwise, you're going to start to phase out from 236 to 246,000. If you make over 246,000 and you're a married couple filing jointly, you cannot make a Roth IRA contribution. So some of those income phase outs have gone up a bit, although the contribution amounts or limits did not increase for 25. Contrast that to the next thing we want to talk about is 4 0 1 Ks, 4 57 Bs, 4 0 3 Bs, simple IRAs, which are everything but simple in 2025. But let's start with 401k deferrals. The deferral limit went up by $500 in 2025. So now in 2025, you can do $23,500 toward your 401k deferral. It's employee deferrals. Now, if you are 50 years of age or older, now you're going to have to focus in here because these are the changes that came from Secure Act 2.0. 

Speaker 1 (03:59):

I'm going to explain what they are and then the reasoning behind the changes. If you are 50 years of age to 59, you will be able to do a catch up of $7,500, which is the same as in 20 24, 70 $500 ketchup. Now here's the kicker. If you are age 60 to 63, you can do what we're going to call a super ketchup and it's going to be $11,250. Instead of the $7,500 in 2024, that was not in existence. Everyone's ketchup was the same as long as you were 50 years of age or older. But going forward, 60 to 63, you can do a super catch up. So what happens if you are 64 or older? Do you get to enjoy that super ketchup? No, you do not. You get to go back to the $7,500 ketchup amount. So from 50 to 59 or 64 plus the ketchup is 7,500. 

Speaker 1 (05:04):

If you're 60 to 63, the ketchup is $11,250. Now, if you're wondering why is that? Why can you not do the super catchup if you're 64 years of age or older? Why is it just for 60 to 63? What is the reason behind that? And totally normal. If you had that question, if you asked that question to me, my answer would be there is absolutely no reason that they set it up that way. To me, it doesn't make any sense. So I can't tell you the why behind that. It's more complex than it needs to be, but here we are, and that's the way it is. So we can complain about it. If you're 64 or older, I'm sorry, you just caught the short end of the stick here, 60 to 63, you get to do the super catch up. So moving forward now again to simple IRAs, and I wish it got simpler. 

Speaker 1 (05:56):

Unfortunately, it gets worse, believe it or not. So if you have a simple IRA, your deferral limit is going to be $16,500 in 2025. That is a $500 increase from 2024. So that's the easy part. Now we get to the catch up contributions. So we've got a little bit of the same deal going on from 50 to 59 and 64 plus. That's going to be one group, and then from 60 to 63, that's going to be another group. So let's cover the super catchup first. The super catchup is going to be that group 60 to 63, and you can do $5,250 if you're in that 60 to 63 group. Okay? $5,250. If you are 50 to 59 or 64 plus, and you work at a company with less than 25 employees, or you work at a company with more than 25 employees and the company contributes more than the usual amounts on your behalf. 

Speaker 1 (06:58):

So that would mean the company contributes a non-elective contribution of more than 2%. So maybe they do 3%, or your company does a matching contribution of more than 3%, so maybe they do 4%. If you qualify less than 25 employees or more than 25 employees and a larger employer contribution, then you get to do a $3,850 catch up. If you are in those age brackets, 50 to 59 and 64 plus again 60 to 63, you get 5,250. So what if your company is over 25 employees and does not do a larger than typical contribution? Then you're going to be stuck with the $3,500 ketchup limit. Again, anything but simple. But if you have questions about how much you can contribute, just reach out to us. We'll walk you through the flow chart that basically everyone needs now to figure out, can I, how much can I do? 

Speaker 1 (08:06):

Can I do this? Can I do that? It's going to get a little bit worse and more complicated in 26, but I'm going to save all of that for 2026. We'll get to talk about more changes. So that is the retirement plan section that I wanted to cover. And then lastly, I wanted to get into just some important tax changes, and obviously tax brackets are changing, but I wanted to talk about the standard deduction amount that is going up. So it was 14,600 for an individual filer in 2024. It's going up to 15,000 in 2025, and if you are unmarried 65 or older or blind, then you get an additional $2,000 in a deduction versus $1,950 in 2024. So a few increases there. For married couples filing jointly, there was an $800 increase on your standard deduction. It's going to be an even $30,000 in 2025. 

Speaker 1 (09:07):

And if you are 65 or older and you're a married filer, you get that additional deduction in 25 of $1,600 per person. So if you are a married couple, both over the age of 65, you get your $30,000 deduction plus $1,600 plus another $1,600. So that would be $33,200 and a standard deduction. So again, those higher standard deduction amounts been making it very difficult for folks to itemize their deductions. So that's the change in the standard deduction in 2025. And then the social security wage base is also going up. It was 168,600 in 2024. It's going up to 176,100 in 2025. Last but not least, we have HSA contribution changes in 2024. If you're an individual, you could do 4,150 families could have done 8,300. Now that's going to 4,300 for individuals and 85 50 for families. The catch up has remained unchanged. It's a thousand dollars was in 2024 and remains in 2025. 

Speaker 1 (10:19):

So those are a few of the changes that are coming down the line from the IRS in 2025 for your contributions to your 4 0 1 Ks to your IRAs. Again, I encourage you, if you have any questions about any of this, feel free. Again, go to retirement power hour podcast.com with some of the complexities that have been added because of Secure Act 2.0 makes it a little bit more difficult. So that's it for this mini episode of the Retirement Power Hour. Make sure to stay tuned next time where we help listeners invest wiser and retire better. Take care.