Jan 21, 2025
Investing in a 401(k) can be one of the best ways to grow your retirement savings. There are lots of reasons why that's the case. For one thing, it's easy since money for an employer-sponsored plan comes right out of your paycheck. The contributions are also tax deductible and your employer may match them, depending on company policy.
If you're already investing in a 401(k), or if you want to start, you should be aware that some key IRS changes are going into effect in 2025.
1. Contribution limit changes
The first big change will affect workers who are maxing out their accounts or making the maximum tax-deductible contribution allowed under the law. It's an increase in the amount you're allowed to invest.
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The maximum individual contribution jumped up to $23,500 in 2025. Most people probably won't hit this limit — an estimated 14% of participants contributed the maximum to their 401(k) in 2023, according to the latest Vanguard data report. However, for those who do, being able to invest this extra money can mean more tax savings now and more retirement money later.
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2. Supercharged catch-up contributions
Catch-up contributions are extra contributions that you can make above and beyond the standard limit once you have reached the age of 50. For many workers in this category, the 401(k) limit remains unchanged from 2024 at $7,500.
But thanks to the SECURE Act 2.0, those approaching the end of their career can now really supercharge their savings. The law ushered in a new rule that provides extra catch-up contributions for employees aged 60 to 63. Those older workers can make additional 401(k) contributions of $11,250 in 2025 instead for a total up to $34,750.
While that's a lot of money, and likely out of reach for most people — Vanguard's data shows an estimated 15% of eligible employees took advantage of catch-up contributions if offered — it can be a welcome boost to those who are worried about having enough invested for the future.
3. Income limits to claim Saver's Credit are increasing
Finally, there's another important change in 2025. The income limit to claim the Saver's Credit is increasing to:
- $79,000 for married couples filing jointly, up from $76,500
- $59,250 for heads-of-household, up from $57,375
- $39,500 for single tax filers, up from $38,250
The Saver's Credit provides a tax credit equal to 10%, 20% or 50% of the contributions you make to a 401(k) or other eligible retirement plan. The maximum credit is $1,000 for single tax filers or $2,000 for married joint filers. Since credits reduce taxes on a dollar-for-dollar basis, they can be very valuable, and a higher income limit to qualify means more people will benefit.
Each of these changes can help you to increase your retirement savings by enabling larger contributions and better tax breaks. If you can, take advantage of the opportunity to max out your tax-advantaged 401(k) contributions to set yourself up to have plenty of financial security as a retiree.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
