Older workers will soon have the opportunity to significantly increase their retirement savings under new rules set to take effect in 2025, the Daily Mail reports.
The Internal Revenue Service (IRS) has announced adjustments to the maximum contribution limits for 401(k) accounts, reflecting a notable change aimed at bolstering retirement savings for those nearing retirement age.
Starting in 2025, individuals aged 60 to 63 will be allowed to make catch-up contributions of up to $11,500 to their 401(k) accounts. This change is particularly beneficial for workers who may not have saved adequately earlier in their careers or who have taken breaks from the workforce for family-related reasons. Consequently, individuals who reach these ages within the year will be able to contribute as much as $34,750 to their workplace retirement plans, which is a 14 percent increase compared to the previous year. This adjustment marks the most significant alteration to 401(k) contribution rules in two decades.
In addition to the increased catch-up limits, the IRS has outlined the maximum contributions for retirement accounts across various age groups for 2025. Americans under 50 will be able to contribute up to $23,500 to their 401(k) plans, an increase of $500 from 2024. For those aged 50 to 59, the total contribution limit will be $31,000. Individuals over 64 can also contribute up to $31,000.
The changes are not limited to 401(k) plans. Workers participating in 403(b) plans and the federal government’s Thrift Savings Plan will see their contribution limits rise to $23,500 in 2025, up from $23,000 in 2024. However, certain contribution limits remain unchanged: the annual contribution limit for Individual Retirement Accounts (IRAs) will remain at $7,000, with the catch-up contribution limit for those aged 50 and older staying at $1,000 for the year.
These adjustments come amid a series of annual inflation updates by the IRS, which reflect changes in the economic landscape. In addition to raising contribution limits, the IRS has announced increases to standard deductions for taxpayers in 2025. The standard deduction for single taxpayers and married individuals filing separately will rise to $15,000, an increase of $400 from the previous year. Couples filing jointly will see their deduction increase by $800 to $30,000, while heads of households will have a standard deduction of $22,500, up $600 from 2024.
These adjustments are part of the IRS’s ongoing efforts to account for inflation, which has shown signs of moderating recently. The annual inflation rate was reported at 2.4 percent in September, a significant decrease from the 9.1 percent peak observed in June 2022. As a result, while taxpayers will benefit from higher standard deductions in 2025, the increases are relatively smaller compared to those in previous years.
