The IRS announced its 2025 retirement plan limit and estate updates. A bullet-point summary is below, and explanations are underneath.
- 401(k) Contributions: $23,500
- Additional Catch-up Contributions if age 50+: $7,500
- See below for new “super” catch-up rule for ages 60-63.
- IRA limit: $7,000
- Additional Catch-up Contributions if age 50+: $1,000
- Annual Gift Tax Exclusion: $19,000
- Estate Tax Lifetime Exemption: $13,990,000
- FSA/HSA limits: $3,300 (single) / $4,300 (single)
- HSA Family: $8,550
- HSA Additional Catch-up Contribution if Age 55+: $1,000
- Standard Deduction: $15,000 (Single) / $30,000 (Married Filing Jointly)
- Additional Standard Deduction if Age 65+: $2,000 (single) / $1,600 (each if married)
- Social Security Cost of Living Adjustment: 2.5%
401(k), 457, and 403(b) Contribution Limits
Employees can make contributions of $23,500, up from $23,000 in 2024.
Those 50 and older can make catch-up contributions of $7,500 (the same as last year). So, in 2025, those over 50 can contribute up to $31,000 annually to their 401(k), 403(b), or 457.
New Super Catch-Up Rule for 401(k)s, 457s, and 403(b)s
Instead of the standard $7,500 catch-up contribution for those age 50+, the new super catch-up contribution allows workers aged 60-63 to contribute an additional 150% of the age 50 standard catch-up limit ($7,500 x 150% = $11,250). Eligibility is defined by the age at the end of the year, i.e., someone who is 60-63 on December 31, 2024.
IRA and Roth IRA Contribution Limits
The contribution limit for IRA and Roth IRA contributions will remain $7,000. If you are over 50, an additional contribution of $1,000 is allowed.
Annual Gift Tax Exclusion
The annual gift tax exclusion for 2025 will increase by $1,000 to $19,000. The exclusion is the maximum amount an individual can give to another person within a calendar year without incurring federal gift tax or the need to file a gift tax return. Gifts that stay within the annual gift tax exclusion limit do not count against your lifetime gift and estate tax exemption.
Estate Tax Exemption Increases
The lifetime estate tax exemption limit will increase from $13,610,000 to $13,990,000 in 2025.
These numbers are for single filers. If married, the exemption amount for 2025 is $27,980,000. The estate tax is levied on the transfer of a deceased person’s assets to their heirs. This tax applies to the net value of the estate – all property, cash, real estate, stocks, and other assets owned by the deceased at the time of death, after deducting liabilities, allowable deductions, and any available exemption amount.
The Tax Cuts and Jobs Act (TCJA) is set to sunset in 2026. Unless new legislation passes before then, the estate tax exemption will revert to pre-2017 numbers. This means that the exemption will drop from $14.0M to ~$7.0M.
HSAs and FSAs: Healthcare Savings Accounts
The Flexible Spending Account (FSA) contribution limit will be $3,300 in 2025. FSAs are tax-advantaged accounts offered through employers that allow employees to contribute and then spend pre-tax dollars for healthcare costs. FSAs typically have a “use it or lose it” rule within the plan year.
The Health Savings Account (HSA) contribution limit will be $4,300 for individuals and $8,550 for family coverage. At age 55, individuals can contribute an additional $1,000. HSAs are 3x-tax-advantaged accounts for those with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and distributions are tax-free. Unlike FSAs, HSAs are portable, meaning the account and its funds stay with you even if you change jobs or retire.
Standard Deduction and Income Tax Brackets
Standard deductions will increase depending on your filing status. Single filers’ standard deduction will increase by $400 to $15,000. Married filing jointly filers’ deduction will increase by $800 to $30,000. Taxpayers who are 65 or older can take an additional standard deduction, which is also adjusted for inflation. For tax year 2025, that amount is $2,000 for single filers and $1,600 each for married folks.
Social Security COLA
Social Security benefits will increase 2.5% in 2025. The Social Security Cost-of-Living Adjustment (COLA) is an annual increase in benefits designed to help recipients maintain their purchasing power amid inflation. The COLA is determined by the Social Security Administration (SSA) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the cost of goods and services.
The 2.5% increase is the smallest since 2021. This adjustment reflects a period of more moderate inflation. Past years’ COLAs were 3.2% (2023), 8.7% (2022), and 5.9% (2021).
Conclusion
If you have any questions on how these changes may affect your financial landscape, please contact your advisor at BEW.
Burton Enright Welch is an independent, fee-only financial planning and investment management firm based out of Walnut Creek, California.
