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There are many ways to save for retirement every year, but you cannot contribute an unlimited amount. The IRS sets limits to these amounts and has released updated contribution limits for 2025. Here is a summary of this year’s limits.
401(k) Contributions
The employer-sponsored 401(k) plan is one of the most popular ways to save for retirement because of potential tax advantages, higher contribution limits, and the possibility for employer contributions.
The employer-sponsored 401(k) plan is one of the most popular ways to save for retirement because of potential tax advantages, higher contribution limits, and the possibility for employer contributions.
The 2025 annual maximum deferral contribution limit for participants is $23,500 (up from $23,000 in 2024), and the catch-up contribution limit remains $7,500. New for 2025 is a “super” catch-up limit of $11,250, specifically for those reaching ages 60-63 during 2025 (vs. $7,500).
A few tips:
- If your intent is to max out your deferral contributions, double-check your deferral percentage or fixed dollar amount election on file with your payroll provider. You may need to update.
- If you turn 50 in 2025, you are now eligible to make catch-up contributions and if you turn 60,61,62 or 63 in 2025, you are now eligible to make “super” catch-up contributions = opportunities to save more.
- If you cannot max out your deferral contributions, consider increasing from the prior year. Financial planners often recommend saving 10-15% of your pre-tax income annually, which includes employer contributions such as a match. Increasing your deferral by even 1% each year can make a significant difference in the long term.
- If your employer offers a match, try to at least contribute enough to receive the full match.
- If you are considered a long-term part-time employee (age 21 or older and working 500 or more hours for the past two consecutive years), 2025 might represent a new opportunity to use your company’s 401(k) plan as a tool for your savings. This may be different from prior year(s) where your part-time employment prevented you from entering the plan.
IRA/Roth IRA Contributions
IRAs and Roth IRAs offer an additional or alternative opportunity to save for retirement.
No changes to IRA contribution limits for 2025, with the maximum continuing to be the lessor of $7,000 or 100% of earned income and catch-up continuing to be $1,000 for those who have attained age 50 or older. These limits are the combined maximum you can contribute annually across all personal IRAs.
IRAs and Roth IRAs offer an additional or alternative opportunity to save for retirement.
No changes to IRA contribution limits for 2025, with the maximum continuing to be the lessor of $7,000 or 100% of earned income and catch-up continuing to be $1,000 for those who have attained age 50 or older. These limits are the combined maximum you can contribute annually across all personal IRAs.
A few tips:
- If you did not make the maximum contribution to your IRA last year, you can still make contributions for 2024 until April 15, 2025.
- Non-working spouses may fund accounts based on their spouse’s earned income.
- If you are covered by a workplace plan and your income exceeds certain limits in 2025 (ex. $79,000 for single or $126,000 for married, filing jointly), your ability to deduct traditional IRA contributions starts to phase out.
- Income limits also apply to Roth IRA contributions. In 2025, you can make maximum Roth IRA contributions if income is less than $150,000 (single) or $236,000 (married, filing jointly). The contribution limit then begins phasing out until you reach $165,000 (single) and $246,000 (married, filing jointly), at which point no contributions can be made.
- If you find yourself unable to contribute due to income limits, you could consider an alternative “back door Roth IRA” option. This involves making a non-deductible traditional IRA contribution and immediately converting it to a Roth IRA. Make sure you understand the tax consequences.
- Keep in mind that you can fund an IRA even if you are also contributing to a workplace retirement plan (keeping in mind the income limits noted above).
- Beginning last year, funds from a 529 plan can be rolled over into a Roth IRA for the beneficiary after 15 years. This is subject to the annual Roth contribution limits, and an aggregate lifetime limit of $35,000.
Other Financial Planning Items to Consider in 2025:
HSA Contributions
Health savings accounts (HSAs) let you save and pay for qualified medical expenses with tax-free dollars if you are eligible. To contribute to an HSA, you must be enrolled in an HSA-eligible high-deductible health plan and meet some additional criteria. The HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage. Those age 55 and older can contribute an additional $1,000 as a catch-up contribution. The annual limit includes contributions made by your employer.
Health savings accounts (HSAs) let you save and pay for qualified medical expenses with tax-free dollars if you are eligible. To contribute to an HSA, you must be enrolled in an HSA-eligible high-deductible health plan and meet some additional criteria. The HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage. Those age 55 and older can contribute an additional $1,000 as a catch-up contribution. The annual limit includes contributions made by your employer.
Qualified Charitable Distributions (QCDs)
A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity. If done correctly, the distribution amount is then excluded from your taxable income. This may be a great way to lower your taxable income if needed. You must be at least age 70 ½ at the time you request a QCD, and if you are over age 73, the amount of the QCD also counts toward satisfying your required minimum distribution (RMD). The maximum annual distribution amount that can qualify for a QCD in 2025 is $108,000. Be aware that certain charities are not eligible to receive QCDs, such as donor-advised funds and private foundations.
A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity. If done correctly, the distribution amount is then excluded from your taxable income. This may be a great way to lower your taxable income if needed. You must be at least age 70 ½ at the time you request a QCD, and if you are over age 73, the amount of the QCD also counts toward satisfying your required minimum distribution (RMD). The maximum annual distribution amount that can qualify for a QCD in 2025 is $108,000. Be aware that certain charities are not eligible to receive QCDs, such as donor-advised funds and private foundations.
Estate and Gift Tax
The federal estate tax exemption for 2025 is $13,990,000 (up from $13,610,000 in 2024), and $27,980,00 for a married couple. The annual gift tax exclusion for 2025 is $19,000 per recipient (up from $18,000 in 2024). This is the amount each person can give to an individual this year without having to report it to the IRS on a gift tax return.
The federal estate tax exemption for 2025 is $13,990,000 (up from $13,610,000 in 2024), and $27,980,00 for a married couple. The annual gift tax exclusion for 2025 is $19,000 per recipient (up from $18,000 in 2024). This is the amount each person can give to an individual this year without having to report it to the IRS on a gift tax return.
Estate Planning
Review your estate plan to make sure it still represents your wishes. If you do not have an estate plan in place, consider making it a priority for this year. An estate plan ensures that your assets are distributed according to your wishes.
Review your estate plan to make sure it still represents your wishes. If you do not have an estate plan in place, consider making it a priority for this year. An estate plan ensures that your assets are distributed according to your wishes.
Emergency Savings
Finally, check your emergency fund. This is especially important as we live in a world of uncertainty. An emergency fund can help protect you from two types of financial emergencies: spending shocks and income shocks. Spending shocks – like a broken windshield or root canal – are generally unplanned and unwanted expenses. Income shocks – like losing a job – can last longer than expected. To prepare for both, experts suggest keeping enough money in your emergency fund to cover three to six months’ worth of living expenses.
Finally, check your emergency fund. This is especially important as we live in a world of uncertainty. An emergency fund can help protect you from two types of financial emergencies: spending shocks and income shocks. Spending shocks – like a broken windshield or root canal – are generally unplanned and unwanted expenses. Income shocks – like losing a job – can last longer than expected. To prepare for both, experts suggest keeping enough money in your emergency fund to cover three to six months’ worth of living expenses.
If you would like help reviewing your situation, Waukesha State Bank Wealth Management is here to help. Please contact 262-522-7400 or wealthmanagement@waukeshabank.com to get started.