IRS Increases 401(k) Contribution Limits for 2025

The IRS has announced an increase in contribution limits for 401(k) retirement plans to $23,500 in 2025, a $500 increase from 2024, applicable also to 403(b) and governmental 457 plans. Employees aged 50 and older can contribute a total of $31,000, including a catch-up contribution of $7,500, while those aged 60 to 63 can make even higher contributions of up to $11,250 due to provisions from the SECURE 2.0 Act of 2022. The contribution limits for Individual Retirement Accounts (IRAs) remain unchanged at $7,000, with catch-up contributions for older individuals staying at $1,000. Additionally, the IRS has allowed a new option for employees to allocate part of their 401(k) match to student loan repayments or health reimbursement accounts, aimed at enhancing financial flexibility for workers facing economic pressures. In tandem, the contribution limit for health care flexible spending arrangements (FSAs) has also risen, allowing employees to contribute $3,300 in 2025. These changes reflect ongoing efforts to improve retirement savings options amid rising living costs and the declining role of traditional pensions.