401(k) Maximum Going Up to $23,500 Next Year

Author: Brightmine Editorial Team

November 5, 2024

The Internal Revenue Service (IRS) has released the 2025 cost-of-living adjustments (COLAs) to limitations on benefits and contributions to qualified retirement and deferred contribution plans. The following are some of the key amounts.

Defined Contribution Plans

The maximum amount employees can contribute to their § 401(k) or § 403(b) plans next year increases by $500, to $23,500 (from $23,000). In addition:

  • The annual compensation limit for figuring contributions to defined contribution plans increases to $350,000 (from $345,000).
  • The limit on annual additions to defined contribution plans under § 415(c)(1)(A) increases to the lesser of 100% of participant compensation or $70,000 (from $69,000).
  • The catch-up contribution limit for most employees ages 50 and older who participate in a § 401(k) or § 403(b) plan remains $7,500.
  • A new higher catch-up contribution limit (under the SECURE 2.0 Act) for employees who participate in a § 401(k) or § 403(b) plan and attain age 60, 61, 62 or 63 in 2025 is $11,250.
  • The amount an employee must earn to participate in a simplified employee pension (SEP) plan remains $750 a year.
  • The amount an employee can contribute on a pre-tax basis into a SIMPLE retirement account increases to $16,500 (from $16,000).
  • The maximum catch-up contribution for an employee age 50 and older who participates in a SIMPLE retirement account or SIMPLE § 401(k) plan remains $3,500.
  • The salary amount used to define a key employee in a top-heavy plan increases to $230,000 (from $220,000).
  • The salary amount used to define a highly-compensated employee increases to $160,000 (from $155,000).

Defined Benefit Plans

The following inflation adjustments relate to traditional pension plans and defined benefit plans:

  • The limit on the annual benefit under a defined benefit plan contained in § 415(b)(1)(A) increases to $280,000 (from $275,000).
  • The limitation under a defined benefit plan for a participant who separated from service before January 1, 2025, is computed by multiplying the participant's compensation limitation, as adjusted through 2024, by 1.0262.

Employee Stock Ownership Plans

The following inflation adjustments relate to employee stock ownership plans (ESOPs):

  • The dollar amount for determining the maximum account balance in an ESOP that is subject to a five-year distribution increases to $1,415,000 (from $1,380,000).
  • The dollar amount used to determine the lengthening of the five-year distribution period in an ESOP increases to $285,000 (from $275,000).

Individual Retirement Accounts

The following are some of the key 2025 amounts attributable to employee contributions to an individual retirement account (IRA), as well as the income limits related to these arrangements:

  • The maximum individual contribution to an IRA remains $7,000.
  • The maximum additional catch-up contribution for individuals ages 50 and older remains $1,000.

For 2025, the compensation amounts defining a control employee increase to:

  • $130,000 (from $120,000) for a control employee who is a corporate board member or officer.
  • $265,000 (from $245,000) for a control employee who is not a corporate board member or officer.

Compensation Limits

The compensation amounts defining a control employee for fringe benefit valuation purposes increase to:

  • $140,000 (from $135,000) for a control employee who is a corporate board member or officer.
  • $285,000  (from $275,000) for a control employee who is not a corporate board member or officer.