Small Business Taxes & Management

Special Report


IRS Announces Inflation Adjustments for Pension Plans

 

Small Business Taxes & ManagementTM--Copyright 2024, A/N Group, Inc.

 

The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan is increased to $23,500, up from $23,000.

The limit on annual contributions to an IRA remains $7,000. The IRA catch-up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2025.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government's Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver''s Credit all increased for 2025.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2025:

The limitation for defined contribution plns under Sec. 415(c)(1)(A) increases to $70,000 from $69,000.

The compensation amount under Sec. 1.61-21(f)(5)(i) of the Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $135,000 to $140,000. The compensation amount under Sec. 1.61-21(f)(5)(iii) is increased from $275,000 to $285,000.

The threshold used in the definition of "highly compensated employee" under Ssection 414(q)(1)(B) is increased from $155,000 to $160,000. The threshold under Section 416(i)(1)(A)(i) concerning the definition of "key employee" for top-heavy plan purposes is increased from $220,000 to $230,000.

Details on these and other retirement-related cost-of-living adjustments for 2025 are in Notice 2024-80.

 


Copyright 2024 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536


Return to Home Page

--Last Update 11/05/24