IRS Notice 2024-80 (Nov. 1, 2024); IRS News Release IR-2024-285 (Nov. 1, 2024)
The IRS has announced the 2025 dollar limits and thresholds for retirement plans, which reflect the latest cost-of-living adjustments. (Dollar limits and thresholds primarily affecting health and welfare plans were announced in separate guidance.) Here are the 2025 limits that are most relevant to 401(k) plans:
- Annual Additions. The limit on annual additions (i.e., contributions) to 401(k) and other defined contribution plans will increase to $70,000 (up from $69,000). Code § 415(c)(1)(A).
- Compensation. The annual limit on compensation that can be taken into account for contributions and deductions will increase to $350,000 (up from $345,000). Code §§ 401(a)(17) (for 401(k) and other qualified plans), 404(l) (for deductions), 408(k)(3)(C) (for simplified employee pension plans (SEPs)), and 408(k)(6)(D)(ii) (for salary reduction simplified employee pension plans (SARSEPs)).
- Elective Deferrals. The annual limit on elective deferrals will increase to $23,500 (up from $23,000) for 401(k), 403(b), and 457 plans, as well as SARSEPs, and to $16,500 (up from $16,000) for most SIMPLE plans and SIMPLE IRAs. Code §§ 402(g)(1), 457(e)(15), and 408(p)(2)(E).
- Catch-Up Contributions—401(k) Plans, 403(b) Contracts, 457 Plans, and SARSEPS. The annual limit on catch-up contributions under these plans for individuals aged 50 and over, who are not 60, 61, 62, or 63, remains at $7,500. The annual limit on catch-up contributions for individuals who attain age 60, 61, 62, or 63 is $11,250. Code §§ 414(v)(2)(B) and 414(v)(2)(E). The notice also specifies the dollar amount for determining whether an individual must make catch-up contributions as designated Roth contributions (as required under the SECURE 2.0 Act), which is $145,000. [EBIA Comment: This requirement was originally to take effect in 2024, but the IRS has provided for a two-year administrative transition period until 2026.]
- Catch-Up Contributions—SIMPLE Plans and SIMPLE IRAs. Generally, the annual limit on catch-up contributions under these plans for individuals aged 50 and over, who are not 60, 61, 62, or 63, remains at $3,500. The annual limit on catch-up contributions for individuals who attain age 60, 61, 62, or 63 is $5,250. Code §§ 414(v)(2)(B) and 414(v)(2)(E).
- HCE. The threshold for determining who is a “highly compensated employee” (HCE) will increase to $160,000 (up from $155,000). Code § 414(q)(1)(B).
- Key Employee. The threshold for determining whether an officer is a “key employee” under the top-heavy rules (as well as the cafeteria plan nondiscrimination rules) will increase to $230,000 (up from $220,000). Code § 416(i)(1)(A)(i).
- SEP Participation. The threshold for determining participation in a SEP or SARSEP remains at $750. Code § 408(k)(2)(C).
- Saver’s Tax Credit. The upper income limit for determining whether certain individuals are eligible for the saver’s tax credit (also known as the retirement savings contributions credit) will increase to $79,000 (up from $76,500) for married filing jointly; to $59,250 (up from $57,375) for head of household; and to $39,500 (up from $38,250) for all other taxpayers. Code § 25B.
The IRS has also announced that the amounts for determining who is a “control employee,” a classification relevant to the valuation of company fringe benefits, will increase to $140,000 (up from $135,000) for officers, and to $285,000 (up from $275,000) for other employees. In addition, the Social Security Administration separately announced the annual adjustment to the Social Security taxable wage base, which is relevant for various benefit purposes.
EBIA Comment: There are notable increases in the retirement plan contribution limits for 2025 compared to recent years, as well as a sizable increase in the amount participants aged 60, 61, 62, or 63 can make as catch-up contributions after changes made by the SECURE 2.0 Act. Plan sponsors, administrators, and advisors will want to carefully note when the new limits and thresholds apply. Employee communications, plan procedures, and administrative forms should be reviewed and updated as necessary to reflect these changes. For more information, see EBIA’s 401(k) Plans manual at Sections II.H.2 (“Retirement Savings Contributions Credit (or Matching Contributions in 2027 or Later) for Certain Income-Eligible Plan Participants”), X (“Contributions: The Code’s Annual Limitations”), and XVIII.K.2 (“HCE Compensation Threshold”). See also EBIA’s Cafeteria Plans manual at Section XXVIII.M (“Highly Compensated and Key Employees—Identifying the ‘Prohibited Group’ Members”). The HCE and key employee definitions also apply to a variety of fringe benefits, as explained in EBIA’s Fringe Benefits manual; for example, see Sections IX.F (“Qualified Employee Discount Programs: No Exclusion for Highly Compensated Employees If Discount Program Is Discriminatory”) and XIV.E (“Group-Term Life Insurance: Nondiscrimination: Overview”).
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