2025 Retirement Contribution Update
11/08/2024The IRS recently announced retirement plan contribution changes for 2025, outlined in Notice 2024-80. For construction business owners and employees, these updates bring fresh opportunities to boost retirement savings and build financial security. Here’s a breakdown of the most important updates.
Increased 401(k) Contribution Limits
For 2025, the IRS has increased the maximum annual contribution for 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan:- Employee Contribution Limit: Raised from $23,000 to $23,500.
- Catch-Up Contribution (Ages 50+): Still at $7,500.
- Enhanced Catch-Up for Ages 60-63: Now at $11,250, adding extra support for those closer to retirement.
This means team members aged 50 and up can contribute up to $31,000, allowing for greater savings as retirement nears—a valuable opportunity for seasoned workers in the construction field.
IRA Contribution Limits Hold Steady
For those using traditional or Roth IRAs, the contribution limit remains unchanged at $7,000, with an additional $1,000 catch-up for those 50 and older. While the limit hasn’t increased, IRAs are still a vital tool in long-term financial planning, particularly for diversifying retirement portfolios.Adjusted Income Limits for Roth IRAs
The IRS has adjusted income thresholds for Roth IRA contributions, which can benefit higher earners:
- Single and Head of Household: Phase-out begins at $150,000 and ends at $165,000.
- Married Filing Jointly: Phase-out begins at $236,000 and caps at $246,000.
SEP and SIMPLE IRA Contribution Limits
For construction business owners using SEP IRAs or SIMPLE IRAs, the contribution limits for 2025 are as follows:- SEP IRAs: Limit increased to $70,000.
- SIMPLE IRAs: Employee contribution cap is now $16,500, with the catch-up for ages 50+ still at $3,500.
Defined Benefit Plan Limits Rise
Defined benefit plans—useful for owners of larger firms or those aiming to maximize retirement contributions—have also seen an increase. The maximum allowable contribution is now $280,000, up from $275,000, allowing for significant retirement savings and tax benefits.Updated Health Savings Account (HSA) Limits
While not a traditional retirement account, HSAs can be instrumental in covering medical expenses down the line. For 2025, HSA limits have increased:- Individual Contribution: Now $4,300.
- Family Contribution: Now $8,550.
- Catch-Up Contribution (Ages 55+): Remains at $1,000.
Planning Ahead: Key Considerations
These updates present valuable planning opportunities for small business owners in construction. Here are some ways to make the most of the new limits:- Encourage Higher Contributions: Educate employees about maximizing their retirement contributions within the new limits.
- Assess Your Retirement Plan Options: If your business doesn’t offer a retirement plan, consider implementing a SEP or SIMPLE IRA, both of which have attractive contribution and tax benefits.
- Take Advantage of Catch-Up Contributions: Employees over 50 should leverage catch-up contributions to boost their retirement funds.
- Consider Employer Contributions: Matching contributions can enhance employee morale and help retain valuable team members in a competitive industry.