Every year, the IRS announces cost of living adjustments regarding 401(k) and other plans. The limits that will be in effect for 2025 were announced in IRS Notice 2024-80 and are listed below.
Deferral Limit. The deferral limit for a 401(k) is increased from $23,000 to $23,500. This also applies to 403(b) plans as well as 457(b) government and tax-exempt plans.
Catch-up Contribution Limit. The catch-up contribution limit for those age 50 or older remains at $7500. Under a change made in SECURE 2.0, effective January 1, 2025, the catch-up contribution limit for those who attain age 60, 61, 62, or 63 in 2025 is $11,250. We believe this expanded catch-up provision is optional at this time.
Highly Compensated Employees. The definition of highly compensated employees is increased from $155,000 in 2024 to $160,000 for 2025 ($155,000 in 2024 for HCE determinations in 2025).
Total Contributions to a 401(k) or 403(b) Plan. This amount is increased from $69,000 to $70,000.
Compensation Limit. The maximum compensation limit for a 401(k) or 403(b) plan is increased from $345,000 to $350,000.
In IRS Revenue Procedure 2024-40, the IRS provided an update to the amount that can be contributed to a health flexible spending account.
Health Flexible Spending Arrangements-Cafeteria Plans. For the taxable years beginning in 2025, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements rises to $3,300, increasing from $3,200 in tax year 2024. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
High Deductible Health Plans/Health Savings Accounts. For calendar year 2025, the annual limitation on deductions for a Health Savings Account for an individual with self-only coverage under a high deductible health plan is $4,300. For calendar year 2025, the annual limitation on deductions for a Health Savings Account for an individual with family coverage under a high deductible health plan is $8,550.
For calendar year 2025, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,650 for self-only coverage or $3,300 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,300 for self-only coverage or $16,600 for family coverage.
Taxable Wage Base. The Social Administration announced that the taxable wage base will be $176,100 for 2025. This is the amount that is subject to OASDI tax consisting of 6.2% tax for the employee and 6.2% paid by the employer. There is no limit for the Medicare Hospital Insurance Tax (HI) of 1.45%, employer and employee each-total 2.90%.
For further information, please contact:
Nick Zaino
Partner
203.578.4270
nzaino@carmodylaw.com
This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.