Laura reviews seven changes to various tax-advantaged accounts starting in 2025 that can help you pay less tax and save more money.
Laura reviews seven changes to various tax-advantaged accounts starting in 2025 that can help you pay less tax and save more money.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Welcome back! I really appreciate you joining me for Money Girl episode 878! I'm Laura Adams, an award-winning author, female finance spokesperson, money speaker, founder of The Money Stack, a Substack newsletter, and host of Money Girl with over 43 million downloads.
The Internal Revenue Service or IRS changes perks and contribution limits for various tax-advantaged accounts based on annual inflation changes. While the inflation rate has come down, it’s still high enough to result in small adjustments that you can take advantage of next year.
This post will review seven changes to various tax-advantaged accounts starting in 2025. So, if you want to pay less tax and save more for a secure future, stay with me to learn more!
7 Savings and Retirement Rule Changes for 2025
The following seven savings and retirement rule changes begin in 2025. So, now is an excellent time to adjust your savings plan to take advantage of them in the New Year.
1. Health savings account (HSA) contribution limits increase.
If you purchase an HSA-qualified health plan through an employer or on your own, you can use one of the most tax-efficient accounts on the planet: an HSA. Your contributions are tax-deductible, and your investment earnings are never taxed if you spend them on qualified healthcare expenses. And, as I mentioned, the contribution limits are going up in 2025!
If you’re single with an individual HSA-qualified health plan, your HSA contribution limit increases from $4,150 in 2024 to $4,300 in 2025. If you have a family plan, your limit increases from $8,300 to $8,550.
Plus, if you’re over 55, you can contribute an additional $1,000, which remains unchanged in 2025.
LISTEN ALSO: Your guide to saving money with an HSA now and in retirement
2. Flexible spending account (FSA) contribution limits increase.
An FSA is another type of medical spending account that allows pre-tax contributions; however, unlike an HSA, it’s only offered by employers. You can defer a portion of your paycheck to an FSA and use it to pay qualified healthcare and childcare expenses.
Unlike an HSA, which has no spending deadline, FSA funds must typically be spent by the end of the plan year, known as the “use-it-or-lose-it” provision. For 2024, FSA contribution limits are $3,200, and increase to $3,300 in 2025.
3. Workplace retirement account contribution limits increase.
Most workplace retirement plans—including 401(k)s, 403(b)s, 457s and TSPs—allow employees to contribute up to $23,000 in 2024. Based on cost of living adjustments, the limit will increase by $500 to $23,500 in 2025.
The catch-up contribution limit for those over 50 remains at $7,500 for 2025, giving you a total limit of $31,000 next year. The limits apply to pre-tax, traditional retirement plans and after-tax, Roth accounts. However, there is an exception for older plan participants that I’ll cover next.
If your company also contributes matching or profit-sharing funds, you and your employer's total contributions increase from $69,000 in 2024 to $70,000 in 2025. If you’re over 50, your total contribution limit, including catch-ups, will be $77,500 ($70,000 plus $7,500) starting next year.
Note that 457 plans have unique catch-up rules, so confirm the total with your plan administrator. Also, if you have a SIMPLE retirement plan, the contribution limits are different: $16,000 for 2024, increasing to $16,500 in 2025.
RELATED: Am I saving enough for retirement?
4. Workplace retirement plans have new catch-up limits.
While there isn’t a blanket increase in catch-up contribution limits for every workplace retirement plan participant over 50, a subset of them will be able to contribute more starting in 2025.
Under the SECURE 2.0 Act, those aged 60 to 63 can contribute the greater of $10,000 or 150% of the regular catch-up amount ($7,500 for 401(k)s and 403(b)s in 2025). Therefore, the “super catch-up” amount will be $11,250 for participants in that age range starting next year.
If you participate in a SIMPLE plan, the regular catch-up contribution limit for employees over 50 remains the same for 2025, at $3,500. But those aged 60 to 63 can contribute $5,250 for 2025.
ALSO SEE: 7 pros and cons of investing in a 401(k) retirement plan at work
5. Roth IRA income limits increase.
Anyone with earned income, no matter your age, qualifies for a traditional or Roth IRA. However, there are Roth IRA income limits, and I’ll review what’s changing about them in a moment.
IRA contribution limits will not increase in 2025; they remain at $7,000. If you're over 50, you qualify for an additional $1,000 catch-up, giving you a total contribution of $8,000 in 2024 or 2025.
However, the Roth IRA income cutoff will increase next year as follows, allowing more people to qualify for this terrific account:
RELATED: Think you’re too rich for a Roth IRA? Think again
6. SEP-IRA contribution limits increase.
A SEP-IRA, or Simplified Employee Pension IRA, is a retirement plan for business owners, their employees, and the self-employed. Contributions can only come from an employer; employees can never contribute their own funds.
For 2024, contributions are limited to the lesser of 25% of compensation or $69,000. But the limit increases to the lesser of 25% of compensation or $70,000 per year for 2025. SEP-IRAs don’t offer additional catch-up contributions.
7. Solo 401(k) contribution limits increase.
A solo 401(k) is a retirement plan for the self-employed without any full-time employees, except a spouse. You can make contributions as both the employer and employee in your business.
For 2025, you can make solo 401(k) contributions as an employee, up to $23,500. You’re also allowed to contribute up to 25% of compensation for the employer portion.
But the aggregate contribution limit will be up to $70,000 if you’re under 50 and $77,500 if you’re over 50. However, those between 60 and 63 can have aggregate contributions up to $81,250 ($70,000 plus $11,250). You can contribute up to 100% of your compensation if you don’t exceed those limits.
These aren’t the only IRS changes for 2025, but highlight several likely to affect most Americans’ tax-advantaged savings and retirement accounts.
ALSO READ: 10 IRA Facts Everyone Should Know
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