Retirement Planning Gets a Boost in 2025
Higher Contribution Limits and New Provisions
The Secure 2.0 Act, which became law in 2023, brings good news for retirees in 2025. Contribution limits for employer-sponsored retirement plans are increasing, and new provisions will benefit workers aged 60 to 63. Here’s a breakdown of the key changes to watch for in the new year.
Employer-Sponsored Retirement Plans
Contribution limits for 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan are rising to $23,500, up from $23,000. The catch-up contribution limit for those 50 or older remains at $7,500. However, workers aged 60 to 63 can take advantage of a higher catch-up contribution limit of $11,250.
Individual Retirement Accounts (IRAs)
The contribution limit for IRAs stays at $7,000, and the catch-up contribution limit for individuals 50 and over remains at $1,000. IRA deductions for singles covered by a retirement plan at work phase out for modified adjusted gross income (MAGI) between $79,000 and $89,000.
Roth IRA Fans Rejoice
The income limit range for contributing to Roth IRAs increases to between $150,000 and $165,000 for singles and heads of household, and between $236,000 and $246,000 for married couples filing jointly.
Saver’s Credit and Health Savings Accounts
The income limit for the Saver’s Credit, a nonrefundable tax credit worth up to $1,000, increases to $79,000 for married couples, $59,250 for heads of household, and $39,500 for singles and married individuals filing separately. Health Savings Account (HSA) contribution limits rise to $4,300 for individuals and $8,550 for family coverage.
Social Security and Medicare Changes
The cost-of-living adjustment (COLA) increase in Social Security benefits will be 2.5%, adding around $50 to the average monthly benefit. Medicare premiums will increase to $185, and the annual Part B deductible will rise by $17 to $257. The Social Security Administration (SSA) will require appointments for face-to-face meetings starting January 6.
Full Retirement Age and Delayed Retirement Credits
For people born between May 2, 1958, and February 28, 1959, the Full Retirement Age (FRA) will arrive in 2025. You can start collecting retirement benefits at 62, but your monthly check will be permanently reduced. Delaying benefits until 70 can earn you delayed retirement credits, resulting in an 8% annual increase in your benefit.
Social Security Funding and Automatic Enrollment
Social Security is primarily funded by payroll taxes, currently 12.4%. The amount of income subject to the tax increases to $176,100 in 2025. Starting in 2025, 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll all eligible employees at a default deferral rate of between 3% and 10% of their salary.
Inherited IRAs and Required Withdrawals
If you inherited an individual retirement account after 2019, you must take required withdrawals each year until the account is cleaned out in the 10th year after the original account owner’s death. Missing yearly RMDs or not taking enough can result in a 25% penalty on the amount you should have withdrawn.
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