What Could Happen with the 2025 Retirement Plan Limits?
An updated forecast for the 2025 retirement plan limits projects that almost every key Internal Revenue Code (IRC) limit for qualified retirement plans will rise for 2025, but the final numbers could depend on the level of inflation this month.
Using the IRC’s cost-of-living adjustment and rounding methods, the Consumer Price Index for All Urban Consumers (CPI-U) through August, and estimated CPI-U values for September, benefits consultant Mercer has projected that the contribution limits for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will increase from $23,000 to either $23,500 or $24,000 in 2025. Mercer notes that at present, the limit is too close to call, but a moderate amount of inflation in September will result in the higher limit.
Meanwhile, Mercer projects that the 415(c) DC plan maximum annual addition will increase from $69,000 to $70,000, and the 414(q)(1)(B) highly compensated employee (HCE) and 414(q)(1)(C) top-paid group limit will be $160,000 in 2025, compared with $155,000 for 2024. Mercer notes that if inflation is very low or if there is no inflation in September, then the HCE limit will remain at the 2024 level of $155,000.
Other 2025 projected increases include:
- the 415(b) DB plan maximum annuity limit rising to $280,000 from $275,000;
- the 401(a)(17) and 408(k)(3)(C) compensation limit rising to $350,000 from $345,000; and
- the 416(i)(1)(A)(i) officer compensation for top-heavy plan key employee limit rising to $230,000 from $220,000.
Because the 414(v)(2)(B)(i) catch-up contribution limits (for plans other than SIMPLE plans) remains too close to call because of the rounding methods, Mercer has provided two estimates. For employees ages 60-63, the limit could rise from $7,500 to either $11,250 or $12,000. This is based on the new, higher catch-up contribution limits applicable to participants ages 60‒63 as implemented by the SECURE 2.0 Act. These limits are supposed to first take effect for the 2025 tax year, but the firm notes that this assumes necessary SECURE 2.0 technical corrections pass Congress or the IRS issues guidance that the age 60‒63 limit is based on the 2025 limit for other participants (not the 2024 limit as provided by the statute). For all other employees, the limit could stay the same at $7,500 or rise to $8,000.
The 2025 limits will reflect increases in the CPI-U from the third quarter of 2023 to the third quarter of 2024. The figures cannot be finalized until after September CPI-U values are published in October. The IRS typically announces official limits for the coming year in late October or early November.