It is hard to believe that 2025 is almost here! As we approach the new year, it is important to note that as of November 2024, the IRS has shared changes to the contribution limits for 401(k)s (or equivalent) and Health Savings Accounts (HSAs) for 2025. These updates are aimed at providing greater financial security and incentives for saving, especially for those nearing retirement.
401(k)s and Equivalent
Beginning in 2025, the employee deferral limit for 401(k), 403(b), Thrift Savings Plan (TSP) and 457 plans will increase to $23,500 from $23,000 in 2024.
The more significant change, however, applies to catch-up contributions. Individuals aged 50 and older will continue to be able to leverage an additional $7,500 catch up contribution (which was the case in 2024). But starting in 2025, those aged 60, 61, 62 and 63 can contribute up to $11,250 in catch-up contributions. This means that the total deferral limit for those 60 to 63 will be $34,750 in 2025 thanks to changes enacted under 2022’s SECURE Act 2.0.
Additionally, the defined contribution plan limit (total contributions from both employees and employers) will increase to $70,000 in 2025, up from $69,000 in 2024.
IRAs
IRA contribution limits remain unchanged for 2025. Individuals can contribute up to $7,000 with an additional $1,000 catch-up contribution for those age 50 and older.
HSAs
To a lesser degree of significance, Health Savings Account (HSA) contributions will also increase in 2025. The limit for self-only coverage will rise to $4,300, up from $4,150 in 2024. For family coverage, the limit will increase to $8,550, up from $8,300. The current $1,000 catchup contribution for individuals aged 55 or older remains unchanged for 2025.
Although HSAs are primarily intended for health-related expenses, they also offer tax-deferred growth, making them a valuable tool for long-term savings.
While the time value of money is paramount for long term investing, having the ability to utilize the larger catch-up amounts offers individuals an avenue to assist with bolstering retirement savings as they near financial independence.
As always, we recommend connecting with your planner to see how these new contribution limits impact you.
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