While it may be hard to believe, 2025 will be here in less than two months. It’s as good a time as any to start thinking about cash flow and savings plan for next year. I walked a client thru the recently released retirement contribution limits for 2025. Let’s take a closer look!

Every year, the IRS adjusts retirement plan contributions for inflationary forces. As inflation has come down in the past few years, the rate of increase in contribution limits has also come down. The changes from 2024 to 2025 are far less impressive than they have been in prior years but will still allow for a decent savings rate.

401k, 403b, 457 employee deferrals – the amount employees will be able to defer from their salaries into their employer-sponsored plans is increasing to $23,500 (up from $23,000)

Catch-up contributions – for employees over age 50, the catch-up contribution remains unchanged at $7,500 in 2025. However for those age 60-63, the amount is now $11,250 (as that provision of the Secure Act 2.0 comes into play)

Defined contribution plan limit – the total amount that can be contributed to a defined contribution plan (including employee and employer contributions) is increasing to $70,000 (from $69,000)

IRA limits – Individual retirement accounts (ie: outside of an employer sponsored plan wrapper) have their own set of limits. The 2025 contribution amount remains unchanged ($7,000), with a $1,000 catch-up contribution for those over age 50.

Roth income limits – In order to make a contribution directly to a Roth IRA, your income must be below certain established thresholds. For single filers, the income level at which the contributions begin to phase out is now $150,000 (up from $146,000) and for married, the phase out begins at $236,000 (up from $200,000)

What should you do now? Take the above limits into account as you map out your savings plan for 2025. Your employer plan may automatically adjust your contribution for you (if you have selected the “max out” option) but if not, you will need to make the changes to account for the added $500. If you use IRAs as well, the limit is the same but start to think about when and how you will fund for tax year 2025. And if you are self-employed, make adjustments to savings plan to pick up the additional allowable contributions.

Also, keep in mind that while retirement accounts allow you to save for the future with certain advantages (tax deferred contributions in a traditional 401k/IRA and tax free compounding in a Roth 401k/IRA), they are only one piece of the savings puzzle. You also have the ability to save unlimited funds in an after-tax account as well so be sure to consider all avenues of savings as you draft your 2025 plans!

Happy planning!