2025 Cost of Living Adjustments for Retirement Plans

Keith Dropkin
Jackson Lewis P.C.
Contact
LinkedIn
Facebook
X
Send
Embed

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations on benefits and contributions for retirement plans generally effective for Tax Year 2025 (see IRS Notice 2024-80). Most notably, the limitation on annual salary deferrals into a 401(k) or 403(b) plan will increase to $23,500, and the dollar threshold for highly compensated employees will increase to $160,000. This year’s notice also includes the optional SECURE 2.0 Super Catch-up amounts for participants ages 61-63.  The more significant dollar limits for 2025 are as follows:

LIMIT 2024 2025
401(k)/403(b) Elective Deferral Limit (IRC § 402(g)) The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction. $23,000 $23,500
Government/Tax Exempt Deferral Limit (IRC § 457(e)(15)) The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations. $23,000 $23,500
401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i)) In addition to the regular limit on elective deferrals described
above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit. (See special rule below for those aged 60–63)		 $7,500 $7,500
SECURE 2.0 Super Catch-up Age 60-63 (IRC  § 414(v)(2)(E)(i)) Other than Plans described in 401(k)(11) or 408(p). Not applicable $11,250
Defined Contribution Plan Limit (IRC § 415(c)) The limitation for annual contributions to a defined contribution
plan (such as a 401(k) plan or profit sharing plan).		 $69,000 $70,000
Defined Benefit Plan Limit (IRC § 415(b)) The limitation on the annual benefits from a defined benefit plan. $275,000 $280,000
Annual Compensation Limit (IRC § 401(a)(17)) The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing. $345,000 ($505,000 for certain gov’t plans) $350,000 ($520,000 for certain gov’t plans)
Highly Compensated Employee Threshold (IRC § 414(q)) The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs. $155,000 (for 2024 HCE determination) $160,000 (for 2025 HCE determination)
Highly Compensated Employee (“HCEs”)  (SECURE 2.0 Sec. 603 – IRC § 414(v)(7))    Catch up contributions for HCEs earning above this limit in FICA wages for the preceding year MUST be ROTH contributions.   Not Required for Plan Years beginning in 2025 $145,000 $145,000
Key Employee Compensation Threshold (IRC § 416) The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees. $220,000 $230,000
SEP Minimum Compensation Limit (IRC § 408(k)(2)(C)) The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold. $750 $750
SIMPLE Employee Contribution (IRC § 408(p)(2)(E)) The limitation on deferrals to a SIMPLE retirement account. $16,000 $16,500
SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii))) The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan. (See special rule below for those aged 60-63) $3,500 $3,500
SECURE 2.0 Super Catch-up Age 60-63 (IRC  § 414(v)(2)(E)(ii)) The maximum amount of catch-up contributions that individuals aged 60–63 may make to a SIMPLE retirement account or SIMPLE 401(k) plan. Not Applicable $5,250
Social Security Taxable Wage Base See the Social Security Contribution and Benefit Base site. This threshold is the maximum amount of earned income on which Social Security taxes may be imposed (6.20% paid by the employee and 6.20% paid by the employer). $168,600 $176,100
Send Print Report

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

© Jackson Lewis P.C.

Written by:

Jackson Lewis P.C.
Jackson Lewis P.C.
Contact
more
less

PUBLISH YOUR CONTENT ON JD SUPRA NOW

  • Increased visibility
  • Actionable analytics
  • Ongoing guidance

Jackson Lewis P.C. on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign Up Log in
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide