How do we take a boring topic and make it interesting? I can’t. I’m not that talented. But I do know how to save money on taxes. Does that help? It’s that time of year when the IRS reminds us that contribution limits have changed, and you may be able to take advantage of some tax savings. I bleed red, white, and blue but I also think you pay enough taxes. Let’s save some if we can. So, grab a cup of coffee (or something stronger, if you’re into that), and let’s dive into the new retirement contribution limits for 2025. And remember, while this is a quick rundown, always consult with your tax or financial pro before making any big moves.
Individual Retirement Accounts (IRAs)
Good news! The contribution limit for your Traditional IRA stays the same in 2025 at $7,000. And if you’re over 50, you get a little bonus with a catch-up contribution of $1,000, making the grand total $8,000. It’s like a retirement savings reward for getting older!
Now, if you’re not into early withdrawals (who is, really?), keep in mind that once you hit age 73, you’ll need to start taking Required Minimum Distributions (RMDs). They’re taxed as regular income, and if you take money out before 59½, there could be a 10% penalty. So, resist the urge to spend that IRA money on a “spontaneous” trip to Hawaii until you’re a bit older, okay?
Roth IRAs
For all you Roth fans, the income phase-out range is increasing for 2025:
- If you’re flying solo or head of household, the phase-out range goes from $150,000 to $165,000 (a $4,000 bump).
- For married couples filing jointly, the range will be $236,000 to $246,000 (that’s a $6,000 increase).
- And for the few brave souls filing separately? That range stays $0 to $10,000. Not much change there, but hey, at least you don’t have to worry about it unless you’re feeling extra complicated.
And remember: With a Roth IRA, your withdrawals are tax-free after age 59½—so long as you’ve held your account for at least 5 years. It’s like retirement’s version of a secret handshake.
Workplace Retirement Accounts (401(k), 403(b), 457 Plans)
For those of you with workplace retirement accounts, the contribution limit is up by $500 for 2025, bringing it to $23,500. But if you’re 50 or older, you get to add on an extra $7,500 for a grand total of $31,000. Not too shabby, right?
Here’s where it gets extra fun: If you’re in the 60-63 age range, you get even more love with an additional $11,250 in catch-up contributions! That’s a total of $34,750.
Just a heads up, once you hit age 73, unless you are still working, you’ll need to start taking RMDs from your 401(k). And if you pull the money out too early (before 59½), you could be on the receiving end of a 10% penalty.
SIMPLE Accounts
For those with SIMPLE IRAs, the contribution limit will rise by $500 to $16,500. So, if you’ve been putting money into that, you’ll have a bit more room to stash your cash. And just like the others, once you hit 73, it’s RMD time.
The Bottom Line
Alright, now that your brain is full of numbers (and hopefully, not overwhelmed), here’s the takeaway: 2025 is bringing some increases to your retirement contribution limits, and that’s a good thing. But don’t just let these changes sit in your brain like forgotten New Year’s resolutions. Take a look at your own savings strategy and consider if you can squeeze a little more into your retirement accounts.
Remember: Retirement doesn’t happen by accident. So, if you’re not sure what these limits mean for your situation, give us a call.
Happy saving and may your 2025 retirement dreams be filled with fewer spreadsheets and more beach towels!
