The below presents the Internal Revenue Service’s (“IRS”) recently announced 2025 cost-of-living adjustments for Retirement, Health and Welfare Plans and transportation programs. Some Retirement Plan limitations increased for 2025 due to inflation, while others remain the same. Retirement Plan limits increased an averaged 1.39%. Most Health and Welfare limitations also increased, with the average increase of 2.02%.
The 2025 annual limitations as compared to 2024 are as follows:
|
Retirement Plan Limits |
2024 |
2025 |
||
|
401(k), 403(b) & 457(b) Plan elective deferrals (one limit per person per year, regardless of the number of Plans) |
$23,000 |
$23,500 |
||
|
Age 50 catch-up contribution (for above Plans) |
$7,500 |
$7,500 |
||
|
N/A |
$11,250 |
||
|
SIMPLE Plan elective deferrals |
$16,000 |
$16,500 |
||
|
SIMPLE Plan age 50 catch-up contribution |
$3,500 |
$3,500 |
||
|
IRA contribution limit (traditional and Roth) |
$7,000 |
$7,000 |
||
|
IRA age 50 catch-up contribution (not indexed) |
$1,000 |
$1,000 |
||
|
Defined contribution Plan limit (includes all contributions other than catch-up and forfeiture allocations. Lesser of 100% of pay or this amount.) (one limit per Plan, watch deferrals) |
$69,000 |
$70,000 |
||
|
Defined benefit Plan limit (Lesser of 100% of average pay for highest three consecutive years or the stated limit.) |
$275,000 |
$280,000 |
||
|
Annual compensation limit |
$345,000 |
$350,000 |
||
|
Highly compensated employee |
$155,000 |
$160,000 |
||
|
Key employee |
$220,000 |
$230,000 |
||
|
FICA taxable wage base |
$168,600 |
$176,100 |
|
Health and Welfare Plan Limits |
2024 |
2025 |
|
Flexible Spending Accounts (FSA) |
$3,200 |
$3,300 |
|
Dependent Care FSA (not indexed) |
$5,000 |
$5,000 |
|
HSA age 55 catch-up contribution (not indexed) |
$1,000 |
$1,000 |
|
Self-only Coverage: |
|
|
|
HSA contribution |
$4,150 |
$4,300 |
|
Minimum deductible for HDHP |
$1,600 |
$1,650 |
|
Maximum OOP expense limit for HDHP |
$8,050 |
$8,300 |
|
Family Coverage: |
|
|
|
HSA contribution |
$8,300 |
$8,550 |
|
Minimum deductible for HDHP |
$3,200 |
$3,300 |
|
Maximum OOP expense limit for HDHP |
$16,100 |
$16,600 |
HSA = Health Savings Account HDHP = High Deductible Health Plan OOP = Out-Of-Pocket
The 2025 MONTHLY qualified transportation fringe benefit limitations as compared to 2024 are as follows:
|
Monthly Qualified Transportation Fringe Benefit Limits |
2024 |
2025 |
|
Parking and transit |
$300 |
$325 |
Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2025:
Traditional IRAs
MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or their spouse) participates in an employer-sponsored Retirement Plan:
- For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether they are a participant in an employer-sponsored Plan:
- For a spouse who participates, the 2025 phaseout range limits will increase by $3,000, to $126,000–$146,000.
- For a spouse who does not participate, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
- 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 between $0 and $10,000.
- For single and head-of-household taxpayers participating in an employer-sponsored Plan, the 2025 phaseout range limits will increase by $2,000, to $79,000–$89,000.
Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range cannot deduct any IRA contribution.
However, a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,000 contribution limit for 2025 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.
Roth IRAs
Whether you participate in an employer-sponsored Plan does not affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:
- For married taxpayers filing jointly, the 2025 phaseout range limits will increase by $6,000, to $236,000–$246,000.
- For single and head-of-household taxpayers, the 2025 phaseout range limits will increase by $4,000, to $150,000–$165,000.
- 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.
You can make a partial contribution if your MAGI is within the applicable range, but no contribution if it exceeds the top of the range.
Plan Sponsors should update payroll and Plan Administration systems for the 2025 cost-of-living adjustments and incorporate the new limits in relevant employee and participant communications.
For further information about the new IRS employee Plan limits, contact Heather Smelley at [email protected] or 312.670.7444.
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