The Internal Revenue Service (IRS) has announced 2025 dollar limits on benefits, contributions, and compensation. The Internal Revenue Code (Code) affords tax benefits for employers that sponsor qualified plans and for employees who participate in such plans. In exchange for these tax benefits, the Code places limits on the contribution and benefit amounts. The IRS makes annual cost-of-living adjustments to these limits.
The rate of inflation was lower in 2024 than in 2023, so many limit increases are less than the previous yearly increase.
The key limits for 2025 (and the limits that applied in 2024) are listed in the table below:
|
Code Section |
Limit |
2025 |
2024 |
|---|---|---|---|
|
§402(g)(1)(B) |
401(k)/403(b) Elective Deferrals |
$23,500 |
$23,000 |
|
§457(e)(15)(A) |
457(b) Contributions |
$23,500 |
$23,000 |
|
§414(v)(2)(B)(i) |
Age 50+ "Catch-Up" Contributions to 401(k), 403(b), and governmental 457(b) plans |
$7,500 |
$7,500 |
|
§414(v)(2)(B)(ii) |
Age 60-63 "Catch-Up" Contributions to 401(k), 403(b), and governmental 457(b) plans |
$11,250 |
$7,500 |
|
§415(c)(1)(A) |
DC Annual Additions |
$70,000 |
$69,000 |
|
§415(b)(1)(A) |
DB Annual Benefits |
$280,000 |
$275,000 |
|
§414(q)(1)(B)(i) |
Highly Compensated Employees |
$160,000 |
$155,000 |
|
§401(a)(17)(A) |
Annual Compensation Taken into Account |
$350,000 |
$345,000 |
|
§416(i)(1)(A)(i) |
Key Employee/Officer |
$230,000 |
$220,000 |
|
§223(b)(2) |
HSA Annual Contribution
|
|
|
|
§125(i) |
Health Flexible Spending Account
|
|
|
|
§9831(c) |
Excepted Benefit HRA |
$2,150 |
$2,100 |
|
§9831(d) |
Qualified Small Employer HRA
|
|
|
|
Social Security Wage Base |
$176,100 |
$168,600 |
The most important changes in these limits are as follows:
- The annual limit on elective deferrals will rise from $23,000 to $23,500. "Catch-up contributions" do not apply in calculating this limit, so the annual limit for those age 50 and older is $31,000. And for those age 60-63, based on a statutory change, there is an even higher limit: $34,750.
- The total annual limit on employer and employee contributions ("annual additions") will rise from $69,000 to $70,000. (Again, "catch-up contributions" do not apply in calculating this limit.) This will benefit employees in defined contribution plans that provide for after-tax employee contributions, or that include generous employer-provided benefits.
- The annual limit on compensation that can be used in calculating contributions and benefits and in performing certain nondiscrimination testing will increase from $345,000 to $350,000 (and will be even higher for certain governmental plans).
- The annual amount that individuals can contribute to health savings accounts, if they are covered by high-deductible health plans, will increase from $4,150 to $4,300 in the case of individual coverage, and from $8,300 to $8,550 in the case of family coverage.
- And the Social Security Administration independently announced that the maximum amount of wages subject to Social Security taxes for 2025 will increase from $168,600 to $176,100.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.