401k and IRA contribution limits for 2025
The IRS announced its changes to contribution allowances to retirement accounts for 2025. Here is what you need to know ..
The Internal Revenue Service (IRS) announced the adjustments affecting dollar limitations for workplace retirement plans and other retirement-related items for 2025. Here, in plain English, are some of the highlights that could well affect you.
Much of the information refers to the concept of Modified Adjusted Gross Income (MAGI). See the attachment below for what constitutes MAGI and how it may differ from simply Earned Income. Your tax professional should be able to let you know your exact MAGI.
1) 401k PLANS
There can be small differences between 401k plans, 403b plans and 457 plans but for the sake of simplicity, I will refer here to the most common one, the 401k plan.
The basic annual contribution limit for 2025 for employees who participate in any of these three plan types has been increased from $23,000 to $23,500. The annual “catch-up” contribution limit for most employees aged 50 and over who participate in 401k plans remains unchanged at an additional $7,500 in 2025, so those older employees can now contribute up to a total of $31,000. However, if you are aged 60-63 and still eligible to make plan contributions, this annual catch-up limit is raised to an additional $10k, so an available total contribution of $33,500.
The amount referred to above is purely employee contributions and does NOT include any employer match which, if offered, is additional to the employee contribution.
Employees with a Mega Back Door Roth Contribution available can now contribute an aggregated total of $70k in 2025. See here for more details.
Employee contributions to these plans are not subject to any income limits.
2) TRADITIONAL IRAs
The overall annual contribution limit for individual retirement accounts (Traditional and Roth combined) remains unchanged at $7k for 2025. For taxpayers age 50 or over, the limit will remain at $8k after taking into consideration the unchanged $1k catch-up provision.
The tax-deductibility of these Traditional IRA contributions is subject to income limits as well as circumstantial restrictions.
The pro-rated phase-out of the tax deductibility of your contributions if you file as Single or Head of Household (HoH) and were eligible to contribute to an employer work retirement plan at any time during the year like a 401k/403b/SEP/SIMPLE/457 etc. (regardless of whether you actually contributed or not), now starts at $79k of MAGI and if your MAGI was greater than $89k, then none of your contribution will be considered deductible and our advice is generally to not make a non-deductible contribution.
The pro-rated phase-out of the tax deductibility of your contributions if you file as Married Filing Jointly (MFJ) and were both eligible to contribute to company work plans at any time during the year, now starts at $126k of MAGI and if your combined MAGI exceeded $146k, then none of your contribution will be considered deductible and our advice is generally to not make a non-deductible contribution.
The pro-rated phase-out of the tax deductibility of your contributions, if you file MFJ and you were not eligible to contribute to a company work plan, but your spouse was, now begins at a combined $236k MAGI and if your combined MAGI exceeded $246k, then none of your contribution will be considered deductible and our advice is to not make a non-deductible contribution.
For Single/ HoH filers who were not eligible to contribute to a company plan for the entirety of the previous calendar year or MFJ filers where neither party was eligible to contribute to a company plan at any time in that year, then all contributions are fully tax deductible, regardless of income.
As usual in the tax code, those who file Married Filing Separately (MFS) are slammed the hardest. If either spouse (regardless of living arrangements) was eligible to contribute to a company plan at any time during the year, then neither spouse is eligible for any deduction if their MAGI was over $10k.
Important: if someone was ever eligible to contribute to a company plan at any time during the year (even for just one pay period or with a previous employer earlier in the year), then that counts for these exclusion purposes, even if no contributions were actually made.
3) ROTH IRAs
The overall annual contribution limit for individual retirement accounts (Traditional and Roth combined) remains unchanged at $7k for 2025. For taxpayers age 50 or over, the limit will remain at $8k after taking into consideration the unchanged $1k catch-up provision.
The ability to make contributions directly to Roth IRAs is subject to income limits.
Unlike with Traditional IRAs, contribution limits to Roth IRAs are unaffected by your eligibility to contribute to a workplace plan. They are based solely on your MAGI. Also unlike Traditional IRAs, where you simply do not get a tax deduction beyond the phase-out limits but can theoretically still make a non-deductible contribution if you choose to (not a good idea though in our opinion), with a Roth IRA; you are absolutely prohibited from contributing anything at all if you earn beyond the MAGI upper phase-out limit and will be assessed penalties if you do so.
If you contribute to your Roth IRA during the year, but then later discover that you are ineligible to have done so based on what your income for that year ended up being, then you are able to withdraw this contribution (plus any earnings made on the contribution) before April of the following year as a “Removal of Excess Contribution” to avoid these penalties.
The pro-rated phase-out range for taxpayers making Roth IRA contributions in 2025 is increased to a MAGI of $150k to $165k for Single/HoH filers and a combined MAGI of $236k to $246k for MFJ filers. To be clear, if your MAGI exceeds either of those upper limits, you are prohibited from contributing anything to a Roth IRA that year.
MFS filers who did NOT live with their spouse at any time during the year in question have the same threshold levels as Single/HoH filers. However, if you file MFS and DID live with your spouse at any time during the year in question, then you are both ineligible to contribute anything directly to your Roth IRA if your MAGI was over $10k.
If you are ineligible to contribute directly to a Roth IRA as a result of any of these limitations, check out my article “Is The Backdoor Roth IRA Contribution Right For You? 2025 Edition” for a possible alternative strategy.
There is no minimum or maximum age limit on who can open up and/or contribute to a Traditional or a Roth IRA, but remember that the annual contribution cannot exceed the earned income of the account owner that year - as disclosed on that account owner's tax return. No earned income, no contribution permitted.
In the case of minors who may show some earned income, but a relatively low amount (from a summer job, perhaps) and for whom tax returns are filed, this would usually mean a Roth IRA is the best option, not a Traditional. Remember that while the balance of any kind of IRA in their name will not count against a student when it comes to financial aid, any withdrawals from an IRA will count as income to that student and will negatively impact the financial aid calculation.
The $7k or $8k limits can be spread across both types of IRA if you wish. For example, if eligible for either and under 50 years old - you could, for example, contribute $2k to a Traditional IRA and $5k to a Roth IRA or $3500 to both, just not more than $7k total to either or a combination of both.
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