IRS Boosts Retirement Savings Limits for 2025: Key Considerations for Tax Preparers
The Internal Revenue Service (IRS) has announced increased contribution limits for several popular retirement plans in 2025. These changes have significant implications for taxpayers and tax preparers alike.
Review technical guidance regarding all cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025. (Notice 2024-80)
Here's a breakdown of the key changes and considerations:
401(k) and Similar Plans
Increased Contribution Limit: The annual contribution limit for 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan has increased to $23,500 for 2025.
Catch-Up Contributions: Individuals aged 50 and older can make additional catch-up contributions of $7,500 to their 401(k) and similar plans.
Enhanced Catch-Up Contributions for Older Workers: Individuals aged 60, 61, 62, and 63 can make even higher catch-up contributions of $11,250.
Individual Retirement Accounts (IRAs)
Annual Contribution Limit: The annual contribution limit for traditional and Roth IRAs remains at $7,000 for 2025.
Income Limits for IRA Contributions: The income limits for making deductible contributions to traditional IRAs and contributing to Roth IRAs have been adjusted for 2025. Tax preparers should carefully review these limits to determine client eligibility.
Saver's Credit
Increased Income Limits: The income limits for claiming the Saver's Credit have been increased, potentially benefiting more taxpayers.
SIMPLE IRAs
Increased Contribution Limit: The contribution limit for SIMPLE IRAs has increased to $16,500 for 2025.
Catch-Up Contributions: Catch-up contribution limits for SIMPLE IRAs have also been adjusted.
Key Considerations for Tax Preparers
Stay Updated: Stay informed about the latest IRS guidance and tax law changes to ensure accurate tax preparation.
Review Client Information: Carefully review client information to identify eligible retirement plan contributions and deductions.
Calculate Contribution Limits: Accurately calculate contribution limits based on client age, income, and plan type.
Monitor Income Limits: Pay attention to income limits for IRA contributions and the Saver's Credit.
Consider State Tax Implications: Be aware of state-specific tax laws and how they may impact retirement plan contributions and deductions.
Document Work Accurately: Maintain detailed records of all calculations and decisions made during the tax preparation process.
By understanding and applying these changes, tax preparers can help clients maximize their retirement savings and minimize their tax liabilities.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.
