The IRS sets 2025 401(k) contribution limits.

• The IRS has announced higher 401(k) contribution limits for 2025.
• In 2025, employees can defer $23,500 into workplace plans, an increase from $23,000 in 2024.
• In 2023, only 14% of employees deferred the maximum amount into 401(k) plans, according to Vanguard's 2024 How America Saves report.

The IRS has announced new 401(k) contribution limits for 2025.

The agency increased the employee deferral limit to $23,500 in 2024, up from $23,000, and the change applies to workplace plans, including 401(k)s, 403(b)s, and most 457 plans, along with the federal Thrift Savings Plan. Additionally, the IRS unveiled 2025 catch-up contribution limits for savers age 50 and older, individual retirement account savings limits, and higher income thresholds for Roth IRA contributions.

The IRS reveals new federal income tax brackets for 2025.

In 2025, savers aged 50 and older will have a catch-up contribution limit of $7,500 for their 401(k) plans, while those aged 60 to 63 can save an additional $11,250, thanks to changes made through Secure 2.0. Both amounts exceed the $23,500 deferral limit for 2025.

In 2023, only 14% of employees deferred the maximum amount into 401(k) plans, according to Vanguard's 2024 How America Saves report, which included data from 1,500 qualified plans and nearly 5 million participants.

In 2023, the estimated average 401(k) deferral rate across plans was 7.4%, while the combined savings rate, including employer contributions, was 11.7%, according to Vanguard's report.

The IRS has announced inflation adjustments for 2025, including changes to federal income tax brackets, capital gains brackets, estate and gift tax exemptions, and earned income tax credit eligibility, roughly one week after unveiling these adjustments.