IRS Announces 2025 401(k) Plan Limits

On November 1, 2024, the IRS announced 2025 cost of living adjustments (COLAs) for qualified 401(k) retirement plan contributions. The 401(k) contribution limits are the maximum amounts individuals can contribute to their 401(k) plans each year.

The COLAs for 401(k) plan contribution limits experienced modest increases.

• The Limit on Participant Contributions Increased From $23,000 To $23,500.  

This limit covers both pre-tax contributions (traditional 401(k)) and after-tax contributions (Roth 401(k)). If an individual contributes to multiple 401(k) plans, their total contributions across all plans cannot exceed this limit.

• The Catch-Up Contribution Limit Remains $7,500 For the Second Year in A Row.

The catch-up contribution is available to any participant who reaches the age of 50 by the end of the calendar year. The combined contribution limit for participants eligible for the age-50 catch-up contribution is $31,000.

• *NEW* The Catch-Up Contribution Limit for Participants Ages 60-63.

Effective 2025, the SECURE Act increases the catch-up contribution limit to $11,250 for participants aged 60, 61, 62, or 63. The combined contribution limit for these participants is $34,750.

• The Statutory Limit for Participant & Employer Contributions Increased From $69,000 To $70,000.

Annual contributions to a 401(k) plan, including participant contributions, employer matching and discretionary contributions, and employer allocations of forfeitures (excluding catch-up contributions), can’t exceed 100% of a participant’s compensation or this statutory limit, whichever is less.

• The Participant Compensation Limit Increased From $345,000 To $350,000.

This is the maximum compensation that can be considered when calculating both participant and employer contributions.

• The Compensation Threshold For “Highly Compensated Employees” Increased From $155,000 To $160,000.

The IRS requires annual discrimination testing to ensure that participants who earn salaries above this threshold (i.e., “Highly Compensated Employees”) don't disproportionately benefit from their employer’s 401(k) plan (the IRS “nondiscrimination” test).

• The Compensation Threshold for “Key Employees” Increased From $220,000 To $230,000.

The IRS also requires annual testing to ensure that the value of the account assets of participants who earn salaries above this threshold (i.e., “Key Employees”) don’t exceed more than 60% of all assets held in their employer’s 401(k) plan (the IRS “top-heavy” test).

 
A copy of IRS Notice 2024-84 can be found at https://www.irs.gov/pub/irs-drop/n-24-80.pdf. The Notice also includes COLA adjustments for pension plans and other retirement-related plan limits.