The federal government places annual contribution limits to 401(k), 403(b)s, IRAs, and Thrift Spending Plans (TSP) to prevent high-earners from receiving more tax breaks than the average worker. The contribution limits are updated annually, and though increases are likely, they are not always guaranteed.
In 2024, the maximum amount an individual could contribute to a 401(k) or 403(b) was $23,000, while the maximum IRA contribution was $7,000.
Related: How average Americans can better plan for 401(k), retirement income
The IRS recently announced the 2025 retirement contribution limits, and while the update was fairly standard, it did come with one surprise. 401(k) contributions increased by $500 from last year, but the IRA contribution limit was unchanged.
IRA contribution limits are linked to inflation, so the lack of increase is likely tied to easing inflation and the modest Social Security Cost of Living Adjustment (COLA) the IRS issued in October. These limits determine an employee’s tax deductions and how much it takes to max out their 401(k) and IRA retirement contributions for the year.
2025 401(k), IRA, and catch-up contributions explained
The IRS announced that the 2025 401(k) and 403(b) contribution limit was raised from $23,000 to $23,500, taking effect on January 1, 2025. This means the maximum amount employees can save in their retirement plans is capped at $23,500 for the year, not including any employer match contributions.
Those hoping to save more may consider an IRA, which has a contribution limit of $7,000 annually, unchanged from the 2024 limit. Workers who are at least 50 are eligible for catch-up contributions for their 401(k) and IRA.
More on retirement:
- The average American faces one major 401(k) retirement dilemma
- How your mortgage is key to early retirement
- A few simple tasks can help you thrive in retirement
Older workers are eligible for higher contributions as they approach retirement age and may need to contribute more during their highest earning years. However, the 401(k) catch-up contribution limits remained unchanged at $7,500, meaning that older workers can contribute a maximum of $31,000 annually.
The Secure Act 2.0 established a COLA for IRA catch-up contribution limits, taking effect in 2024. However, 2024 and 2025 IRA catch-up contributions have remained flat at $1,000, likely due to cooling inflation rates.
The act also increased catch-up limits for 401(k) and 403(b) participants aged 60 to 63 to 150% of the catch-up limit, beginning in 2025.
Shutterstock
401(k), IRA contribution limits change in 2025
In keeping with the 2025 Social Security COLA update, the 401(k), 403(b), and IRA contribution limit increases were smaller than in previous years.
Sam Taube, Lead Investment Writer at NerdWallet, notes that the decision not to raise IRA contributions may indicate current economic conditions, particularly slowing inflation.
“In the last few years, the IRS has usually increased both IRA and 401(k) contribution limits, and the decision to leave IRA limits unchanged for 2025 may reflect slowing inflation,” he said.
Related: The average American faces one major 401(k) retirement dilemma
Taube notes that this update may most affect workers without a 401(k) who are reliant on an IRA.
"On the one hand, this decision could make it easier for taxpayers who have recently gotten a raise to max out their IRA contributions," he said. "However, it also means that taxpayers who don’t have access to a 401(k) and are already maxing out their IRA contributions can’t put additional money aside for retirement in 2025.”
“This year’s IRS changes highlight the differences between 401(k)s and IRAs — and they illustrate why the conventional wisdom is to contribute the maximum employer-matched amount to a 401(k), if you have one, before contributing to an IRA.”
Related: Veteran fund manager sees world of pain coming for stocks
