Episode 93: Maxing Out for 2025

Transcript

Hello and welcome to the Balanced Wealth podcast. My name is Jarrett Topel.

As we wrap up 2024 and turn our attention to the New Year, I wanted to explain some changes in the ever evolving world of retirement plan contributions, and remind everyone out there of the new retirement plan contribution limits for 2025.

So, whether you’re saving in a 401(k), 403(b), Traditional IRA, or Roth IRA, knowing the limits can help you maximize your savings and take advantage of tax benefits and the awesome power of compounding growth.

So, let’s break it down!  And, you may want to pause this podcast while you grab a pen and some paper, as I am about to throw a whole bunch of numbers at you.

First up, let’s talk about 401(k)s and 403(b)s and similar workplace retirement plans.

For 2025, the IRS has increased contribution limits slightly to account for inflation.

If you’re under age 50, you can now contribute up to $23,500 to your 401(k), 403(b), or most similar types of retirement plans for 2025.

That’s up from $23,000 in 2024.

Now, if you’re aged 50 to 59, you are also eligible for what is known as a “catch-up contribution”, which is a really valuable tool for those who are trying to sock away as much as they can before retirement.

If you are in this age range (50-59), for 2025, you can contribute up to an extra $7,500 into your 401(k) or similar plan, bringing your total limit to $31,000 for the year, if you’re maxing out your plan.

And, now, here’s something that’s brand new for 2025 and beyond.

For people aged 60, 61, 62, and 63, there’s now something called an “enhanced catch-up contribution”.

Starting in 2025, if you’re in that age range (60-63), you can contribute an additional $11,250 to your 401(k) or similar plan, on top of the standard limit.

That brings your total contribution to $34,750, if you’re maxing out for 2025.

And, for those of you who are age 64 an older, you are back to being eligible for the standard catch-up, not the enhanced catch-up, with a total contribution limit of $31,000.  The same amount as those who are in the age 50 – 59 range.

And, yes, I agree, that this is way more confusing than it needs to be.  But, sometimes it feels like the IRS just loves to create confusion.  Just saying.

Now, I know these increases might not seem huge, but over time, they can add up significantly, especially with tax-deferred growth and the power of compounding.

Okay, now, let’s move on to Individual Retirement Accounts, or IRAs – both traditional and Roth, for 2025:

For both types of IRAs, if you are under age 50, the annual contribution limit for 2025 is $7,000, which is the same as it was for 2024.

And, if you’re 50 or older, you can make an additional $1,000 catch-up contribution, bringing your total up to $8,000.  Again, this is the same as it was for 2024.

And, for better or worse, there are no enhanced catch-up contributions available for Traditional and Roth IRAs.

And, as a reminder, don’t forget, the IRA contribution deadline for 2025 will be April 15, 2026, which means you’ve got extra time after year-end to fund these accounts.

Now you might be wondering: Why should I care about these limits? Well, retirement contributions come with some significant advantages.

First, for Traditional 401(k) and Traditional IRA contributions, you may be eligible for a tax deduction, which can lower your taxable income for the year.

Next, all types of retirement plans offer you Tax-Free Growth: Whether it’s a Roth or Traditional IRA, or 401(k), investments inside these accounts grow tax-free.

And, of course, there is the opportunity for Compound Returns: The earlier and more you save, the more your money can work for you over time.

For example, maxing out an IRA at just $7,000 a year, with a 7% annual compound return, could grow to over $700,000 in 30 years.

The power of compounding and the benefits systematic savings are very real and not to be missed.

Before we wrap up, let’s touch on the income phase-out ranges for Roth IRAs and Traditional IRA deductions, which have also adjusted slightly for inflation in 2025.

With a Roth, if your adjusted gross income is under $150,000 for an individual, or under $236,000 as a married couple, you’re eligible to make the maximum Roth IRA contribution.

If your modified adjusted gross income is between $150,000 and $165,000 for an individual, or between $236,000 – $246,000 for a couple, you can make a partial Roth contribution.

If you make more than $165,000 as an Individual, or more than $246,000 as a couple, then no Roth IRA contributions are allowed in 2025.

Now, with traditional IRAs, there are no income limits to make a contribution, but there are income limits for those contributions to be tax-deductible, if you are also covered by a workplace retirement plan, such as a 401(k), 403(b), or similar retirement plan.

And, it doesn’t matter if you are using the workplace retirement plan, just that you are eligible for you workplace retirement plan.

If you are covered by a workplace retirement plan, for your Traditional IRA contribution to be 100% deductible, a single person must make less than $79,000.

If you are married, your combined adjusted gross income must be below $126,000 for your traditional IRA contribution to be fully deductible.

If you are single and are covered by a workplace retirement plan, and make between $79,000 – $89,000 your Traditional IRA contribution will be partially deductible.

If you are married and covered by a workplace retirement plan, and make between $126,000 – $146,000, your contribution to a Traditional IRA will be partially deductible.

If you make more than $89,000 as an individual, or more than $146,000 as a married couple, and you are covered by a workplace retirement plan. you will not receive any deduction for your Traditional IRA contribution in 2025.

So, there you have it – the key retirement contribution limits for 2025.

Remember, every dollar you save now is a step closer to the retirement you’ve been dreaming of and every dollar really does make a difference.

Thanks for listening to today’s episode of Balanced Wealth. Wishing you all a happy, healthy and prosperous new year and beyond!