Funding limits continue to reflect rising inflation
Key Takeaways
- Every year, the IRS adjusts retirement plan contribution limits for inflation.
- Increases in contribution limits allow you to save more in tax-advantaged accounts, such as your 401(k), IRA, and Health Savings Account.
- You have until your tax filing deadline to catch up on IRA contributions if you didn’t save as much as you’d hoped in 2024.
As the cost of living continues to rise, the Internal Revenue Service (IRS) offers taxpayers opportunities to save for retirement in tax-advantaged accounts. While the contribution limit increases for 2025 are modest, there are still opportunities to save more in your 401(k), IRA, and Health Savings Account (HSA).
The IRS announced that employees taking part in 401(k) plans will be able to contribute up to $23,500 this year, an increase of $500 from 2024. There also is a change to 401(k) catch-up contributions for individuals who turn 60, 61, 62, or 63 in 2025.
For more details, refer to Notice 2024-80.
Key Changes for 2025
- 401(k) salary deferral limit at $23,500 per individual 401(k)
- 401(k) catch-up contribution for individuals who reach age 60, 61, 62, or 63 in 2025 is $11,250
- Profit Sharing Plan annual limit increased to $70,000
- HSA contribution limit increased to $8,550 for family coverage and $4,300 for individual coverage
Stayed the Same
- 401(k) catch-up contributions at $7,500 for those over 50
- IRA contribution limit at $7,000 and the additional catch-up contribution limit for individuals aged 50 and over at $1,000
- HSA catch-up contributions at $1,000 for those over 55 for both single and family
Income Phase-Out Ranges
Taxpayers can deduct contributions to a traditional or Roth IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse is covered by a retirement plan at work, the deduction may be reduced, or phased out, until it’s eliminated, depending on filing status and income.
In 2025, the income ranges for determining eligibility to make deductible contributions to a traditional or Roth IRA are increasing.
The adjusted gross income (AGI) phase-out range for taxpayers making contributions to a traditional IRA covered by a workplace retirement plan is $126,000 to $146,000 for married couples filing jointly, up from $123,000 to $143,000. For singles and head of households, the income phase-out range is $79,000 to $89,000, up from $77,000 to $87,000.
The Roth IRA phase-out range is $236,000 to $246,000 for married couples filing jointly, up from $230,000 to $240,000 in 2024. For singles and head of households, the income phase-out range is $150,000 to $165,000, up from $146,000 to $161,000 in 2024.
If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA. This is known as the Roth “Back Door” strategy.
Estate and Gift Tax Thresholds
The federal estate tax exclusion amount—how much an individual can shelter from estate taxes—is $13.99 million for deaths in 2025, up from $13.61 million in 2024. Individuals can make lifetime gifts, outright or in irrevocable trusts, up to that amount without incurring federal estate or gift tax. The giver owes tax only if the amount goes over the threshold. Listen to this Accumulating Wealth Podcast episode to learn more about preparing your estate plan.
A separate limit on tax-free gifts is $19,000 for 2025, up from $18,000 in 2024. These gifts don’t count toward the lifetime maximum, and neither the gift giver nor receiver is taxed.
Catching up on 2024 IRA Contributions
If you paused your normal contributions or didn’t save as much as you’d hoped, it’s not too late to catch up on your 2024 savings. You have until April 15, 2025, to make 2024 IRA contributions. The deadline is Oct. 15, 2025, if you’re filing with an extension.
If you exceeded the 2024 IRA contribution limit, you may withdraw excess contributions and any income earned on those excess contributions from your account by the due date of your tax return (including extensions) to avoid penalties. If you do not, you must pay a 6% excise tax on the excess amount for each year it remains in your account.
Looking Ahead
At the end of 2025, the Tax Cuts & Jobs Act (TCJA) is scheduled to sunset, and many of the provisions in this law will revert to prior limits. Doctors will most likely be impacted by an increase in individual income tax rates, as well as an almost 50% decrease in the standard deduction.
It also will be important to work with your advisors on estate planning this year. If the TCJA laws sunset, the estate tax exemption will likely return to pre-2017 levels, adjusted for inflation. This change could mean that many doctor estates that were previously below the exemption amount may become subject to estate tax.
Accumulating Wealth Podcast Episode 208
For a deeper dive into these and other contribution limit changes, don’t miss this episode of the Accumulating Wealth Podcast.
Looking to ensure you take advantage of the limits as they apply to you? For a complimentary consultation, reach out to our team.
