2025 Retirement Contributions Limit

[Jluke]

Announced today.

https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000

$23,500 for retirement plans - 401k, etc

$7,000 for IRA

up $500 for retirement plans, but no increase for IRA. Disappointed

special rules for catch up begin this year but I’m under 50.

[EasyMoney00]

I was hoping for an increase with Roth. Of course not. Tax free growth/withdraws doesn't benefit mr tax man.

[disneysteve]

I was hoping for an increase with Roth. Of course not. Tax free growth/withdraws doesn't benefit mr tax man.

Increases are indexed to inflation and will only go up in $500 increments. Since inflation is low there was no increase warranted. Nothing more to it than that.

[EasyMoney00]

Increases are indexed to inflation and will only go up in $500 increments. Since inflation is low there was no increase warranted. Nothing more to it than that.

Wouldnt this logic also apply to 401k's? Why did they increase?

Inflation is low? Whoever is tracking that metric has their math wrong.

[disneysteve]

Wouldnt this logic also apply to 401k's? Why did they increase?

2.4% of $23,000 is $552 which meets the increase threshold. 2.4% of $7,000 is only $168 which does not.

Inflation is low? Whoever is tracking that metric has their math wrong.

The current inflation rate is 2.4%. How much lower do you expect it to be? The historical average is 3.3% so current inflation is historically low and below average. Anyone trying to convince you otherwise is not worth listening to.

[EasyMoney00]

2.4% of $23,000 is $552 which meets the increase threshold. 2.4% of $7,000 is only $168 which does not.



The current inflation rate is 2.4%. How much lower do you expect it to be? The historical average is 3.3% so current inflation is historically low and below average. Anyone trying to convince you otherwise is not worth listening to.

You guys must be insulated from inflation in your area. Here, people are getting hammered.

[disneysteve]

You guys must be insulated from inflation in your area. Here, people are getting hammered.

I'm referencing the national figure. It may be higher or perhaps even lower in specific locations. The same is true of pretty much any national statistic. Unemployment, for example, is historically low nationwide but that doesn't mean there aren't pockets around the country where the rate is higher. Overall, the US economy is in the best shape it has been in for decades.

[ua_guy]

You guys must be insulated from inflation in your area. Here, people are getting hammered.

It sounds like you're referencing the last couple years of price increases. When inflation comes down, that does not mean prices necessarily come down. The rate of price growth comes down, which is different. Inflation has come way down and is now a normal rate. Some prices remain high and will not come down until demand significantly decreases.

As far as retirement accounts, I was rudely surprised to have my contributions to my 403b and 401a stopped by my employer earlier this year. I thought I had a higher combined contribution limit than the current 23,000 but that is not true. Their 401a does not allow beyond the 23k combined max. So I will fill my IRA for the year and put the rest in a brokerage.

[LivingAlmostLarge]

It sounds like you're referencing the last couple years of price increases. When inflation comes down, that does not mean prices necessarily come down. The rate of price growth comes down, which is different. Inflation has come way down and is now a normal rate. Some prices remain high and will not come down until demand significantly decreases.

As far as retirement accounts, I was rudely surprised to have my contributions to my 403b and 401a stopped by my employer earlier this year. I thought I had a higher combined contribution limit than the current 23,000 but that is not true. Their 401a does not allow beyond the 23k combined max. So I will fill my IRA for the year and put the rest in a brokerage.

this. People (myself included) feel like inflation is up, but it's really not. It's just that the "new normal" price of things is much higher than it used to be.

[srblanco7]

2.4% of $23,000 is $552 which meets the increase threshold. 2.4% of $7,000 is only $168 which does not.

I'm assuming when there is no increase - for example, with the IRA that the inflation becomes "stored value". That is, if the threshold is not met in a given year it's stored as a cumulative amount until the $500 increase is met?

[kork13]

I'm assuming when there is no increase - for example, with the IRA that the inflation becomes "stored value". That is, if the threshold is not met in a given year it's stored as a cumulative amount until the $500 increase is met?

Correct. They evaluate it as cumulative inflation since the last increase. So normally it goes up every 2-4 years, depending on the inflation rate over time. It went up at the start of 2024, so it’ll probably be another year or two before it increases again.

[kork13]

Something I didn't realize earlier about next year's contribution limits (even though JLuke referred to it in OP): The catch-up contribution for folks aged 60-63 is significantly higher than otherwise. Catch-up additional limit based on your birth year:

1961 or earlier	$7,500
1962 - 1965	$11,250
1966 - 1975	$7,500

If you happen to fall into that narrow window, you could contribute almost $35k to a 401k-type plan next year!

It does seem strange that it's only that narrow range of ages ... But it's apparently one of the little provisions from the SECURE 2.0 Act from 2022.

[srblanco7]

Something I didn't realize earlier about next year's contribution limits (even though JLuke referred to it in OP): The catch-up contribution for folks aged 60-63 is significantly higher than otherwise. Catch-up additional limit based on your birth year:

If you happen to fall into that narrow window, you could contribute almost $35k to a 401k-type plan next year!

It does seem strange that it's only that narrow range of ages ... But it's apparently one of the little provisions from the SECURE 2.0 Act from 2022.

Thanks Kork. For the clarity of those who may be perusing this forum, in addition to 401k plans, it also applies to employees who participate in 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan.

Were I still working full time, the idea of being able to stuff $35k into a retirement account (or perhaps better yet a Roth retirement account) would be incredibly appealing, but not appealing enough to go back to RFT hours.