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04 NOV 2024 / IRS
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Advisors, it’s time to up the ante for your clients’ retirement plans! The IRS’s latest update on 2025 contribution limits, driven by a cost-of-living adjustment, brings fresh opportunities to optimize savings strategies without cutting corners. With the 401(k) limit bumped to $23,500—up from $23,000 in 2024—there’s more room for clients to grow their nest eggs. This adjustment impacts 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan, giving advisors even more to work with as they fine-tune retirement strategies for clients.
For clients approaching retirement, especially those aged 60 to 63, the new “super catch-up” option—also part of the cost-of-living adjustment—allows contributions up to $11,250, well above the standard $7,500 catch-up for those over 50. The expanded limits offer a valuable opportunity to revisit retirement plans and maximize tax-efficient savings.
For clients aged 50 or older, the catch-up contribution remains steady at $7,500 for 2025. However, those in the special 60-63 age bracket get an additional advantage, with a catch-up limit increase to $11,250. This brings the total contribution limit for this age group to $34,750 in one year, giving seasoned savers a significant boost. Advisors should confirm that the employer’s plan accommodates this “super catch-up” feature, as not all retirement plans offer it by default.
While the IRA contribution limit stays at $7,000, income thresholds for deductible contributions and Roth IRA contributions have been adjusted to enable higher-income earners to qualify. For instance, the income phase-out range for Roth IRAs now moves up to $150,000–$165,000 for singles and heads of households. For joint filers, the range is now $236,000–$246,000. This shift broadens opportunities for more clients to benefit from Roth IRAs.
For clients with SIMPLE IRAs, the contribution limit increases slightly to $16,500 (up from $16,000), with catch-up contributions for those 50 and over holding at $3,500. However, for the 60-63 age group, the catch-up limit rises further to $5,250, courtesy of the SECURE 2.0 Act.
For clients aiming to reduce taxable income through a traditional IRA, the phase-out ranges have been increased. For single taxpayers covered by a workplace retirement plan, the deduction phase-out range is now $79,000–$89,000. For joint filers where one spouse is covered, the range shifts to $126,000–$146,000. This adjustment provides more flexibility for eligible clients to reduce tax liabilities while growing retirement savings.
With these updates, it’s an opportune time for advisors to reassess client retirement strategies. For those eligible for catch-up contributions, this may be the perfect year to increase retirement savings. Clients close to the income phase-out range for Roth or traditional IRAs may benefit from the raised thresholds, creating more room to optimize contributions.
For full details, refer to the IRS’s official announcement. A proactive approach now means clients can enjoy more peace of mind in their retirement years. Stay tuned for more such stories, and don't forget to subscribe to our weekly newsletter!
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