Retirement Account Contributions: What’s New in 2025

Speaker 1 – 00:00
Welcome to EWA’s FinLit podcast. EWA is a fee only RIA based out of Pittsburgh, Pennsylvania. We hope all listeners
of this podcast will beneft as we deep dive into complex fnancial topics that we will make simplifed for you. And
we hope that this really serves as a catalyst so that you can make the best fnancial planning decisions for your
family and also save time. Welcome everybody, Excited to be joined here by Chris Pavzik. We are talking today about
2025 fnancial planning limits. So there was some, there’s been some changes, some signifcant, some stuff staying
the same. So one of the things that we recommend to do and we do for all of our clients is go in and make all of
these updates immediately in January to start the year. The it.
Speaker 1 – 00:50
You know, it’s crazy to see the difference in a fnancial plan if someone, if you’re maxing out your 401k and even if it’s
$500 every year, every two years, if you have the discipline to go in and make those adjustments up, it can make a
tremendous impact long term in your fnancial plan to make sure you’re flling those right buckets up. So Chris, give
us a quick background. You know, why does this happen every couple of years and yeah, let’s get right into it.
Speaker 2 – 01:10
Yeah, the big reason is just as with everything, infation kind of impacts these limits. So over time the IRS generally
just increases the amount that you can contribute each year. Usually it’s about $500, but not guaranteed every year.
They announce it around this time of year.
Speaker 1 – 01:26
Okay, perfect again. So like if you think about 500 and compare, it’s like 401ks under 50 was 23,000, went up to 23,
500 in 2025. So just on like a relative basis it’s like just over 2%. But if you compare that like infation was in 22, 2022,
it peaked at 9%. There was a pretty big increase. But now the infation’s kind of cooled off between 2 or 3%. We’re
seeing like quarter over quarter. That does make sense. So make sure you take advantage of it though. So Chris,
what are some of the other key legislative updates that affected this?
Speaker 2 – 02:03
Yeah, so one thing is around, it’s called the Secure Act. So I think in 2018, I believe they came out with the frst
iteration of that. And over the years they’ve continued to update the rules. So part of that is going to impact your, if
you’re over 50, catch up contributions. So now if you’re between the ages of 60 and 63 there’s a higher contributor,
higher catch up contribution. The normal catch up applies if you’re over 50, it’s $7,500 extra that you can do into a
401k. And if you’re between age 60 to 63, it’s 150% of this or 11,250.
Speaker 1 – 02:42
That’s a big change. That’s a lot more that you can put in. Well yeah, 50% more obviously. But yeah, those that can
should take advantage of that.
Speaker 2 – 02:49
Yeah. And then if you’re. It’s only from that window though from 60 to 63 at 64 and older it goes back to the 7500
and.
Speaker 1 – 02:56
Then that’s effective this year. That goes in effect 2026.
Speaker 2 – 02:59
That piece is effective this upcoming year in 2025. And then in 2026 there’s supposedly that IRS is going to require
that contribute catch up contributions have to go in on a Roth basis. So they’re not.
Speaker 1 – 03:11
That’s if your earnings are over 145,000 in the Social Security wages. Right.
Speaker 2 – 03:15
Yep.
Speaker 1 – 03:16
Okay.
Speaker 2 – 03:16
Yeah.
Speaker 1 – 03:16
Interesting. Yes. They obviously want to take advantage of getting the taxes now they’re thinking short term. I think
so. Okay, perfect. Well, yeah, let’s just rapid fre. So four, one case. Chris, what were they before, what are they now?
Speaker 2 – 03:29
Yeah, 23,000 in 2024, 23,500 this upcoming year. Catch up contribution stays the same with the exception of ages
60 to 63. So that’s going to stay at 7,500.
Speaker 1 – 03:42
We always hammer this, what’s called, this 415C limit which is affects what’s called the mega backdoor Roth. And
you know, if you’re, if you have a 401k that’s comprised of you doing an elective deferral which would be Roth or pre
tax getting an employee match and I’m sorry, employer match plus a proft share, some options, some plans allow
the option to do this mega backdoor Roth refund after tax and then fund it into or convert it to a Roth, I should say.
So that’s gone up as well. So what’s the total amount that can go into a 401k now in 2025?
Speaker 2 – 04:13
Yeah, so the total it’s up to 70,000 this year.
Speaker 1 – 04:16
So under 50 and then you said the catch up. So 77,500 over 50.
Speaker 2 – 04:21
Yeah, that’s right.
Speaker 1 – 04:22
Yeah. So most people think, oh, I can just put in the 23 5, 20 25. You can put up the 70,000 if you’re under 50. 77,500
if you’re over 50. So look at plan rules. If you have the cash fow can make a tremendous impact for you know, tax
deferral, tax savings, long term asset protection by holding, you know, long term savings inside of 401k et cetera. So
defnitely worth looking into. Can you get the 70,000 in per year and go above and beyond just what you put in plus
employer match. So okay, 457s, same deal, right, Chris? Going up for 23 to 23,500. Catch up. Rules are unique per
plan, so you need to talk to your plan administrator for the details specifc to your plan on the 457s. What about IRAs,
any changes? IRAs?
Speaker 2 – 05:08
No, no changes with as far as traditional and Roth IRAs, technically a SEP IRA that is going up to 70,000 that you
could do there.
Speaker 1 – 05:17
But so traditional Roth 7,000 in 2024, under 50, 8,000 over 50 that no changes to that 2025, no income limits. What’s
income limits and contributing to Roth.
Speaker 2 – 05:29
Or traditional, those have been adjusted slightly just for infation. Looks like the phase out 126 to 146. You’re. You’re
phased out of making the direct contributions. So.
Speaker 1 – 05:43
Gotcha, gotcha. Okay. And then I see Mary fnally joined here 236 to 246 and single does it was that 2024? It looks
like single is 150 to 165.
Speaker 2 – 05:52
Oh yeah, sorry, misread that.
Speaker 1 – 05:53
So that’s gone up signifcantly. But obviously we had the workaround for high income earners utilizing the backdoor
Roth. You just need to make sure there’s no aggregation. You don’t have any other IRA balances including pre tax
SEP IRA. Get all that stuff rolled to a pre tax 401k and then you can do the two step process. No matter how much
you make to get the money inside of the Roth IRA via backdoor Roth, contribute to a traditional and after tax basis,
convert to Roth. Make sure you work with your CPA, your tax preparer to fll out Form 8606 correctly. We fnd that
form is not flled out correctly. So a lot of people are paying double tax when they do that backdoor Roth, which
would make it totally not worth it.
Speaker 1 – 06:32
But we’ve amended a lot of returns now that we have our CPA in house and saving people like $1,500 $2,000 when
we see that mistake in 2023. So okay, SEP IRA. So same thing as a 401 up to 69,000. 2024 now 70,000. The big
change now in 2024, the SECURE act with a SEP. This is very interesting as well.
Speaker 2 – 06:53
Yeah. So now you can contribute on a Roth basis to a SEP ira. Typically in the past, those are all deductible
contributions.
Speaker 1 – 07:00
Yeah, some people would do just for the sake of having that Roth exposure. As a business owner, you have to do a
TPA fee and kind of involve. It’s more of a process. SEP IRA is just like, open up the account. Boom, it goes right in
your tax return. So if you want to do a Roth now, you can do a Roth through a sep. That’s a, That’s a huge change.
That’s big. All right, so the contribution limits for simple IRAs, really simple, up from 16 to 16. Chris, what about, like,
Health Savings Accounts, HSAs, FSAs, that kind of stuff? Any changes there?
Speaker 2 – 07:33
Yeah, those. Those have been adjusted slightly. Health Savings Account, that’s. That’s the one that rolls over year to
year, unlike the fsa, that’s use it or lose it by the end of calendar year. So the HSA is up from $4,150 to $4,300. And
then the healthcare FSA is up to $3,300 from $3,200. So a slight increase for both of those.
Speaker 1 – 07:54
Okay. And I would say the biggest thing that can trip people up is what. What’s referred to as the 401A compensation
limit. So this was 345,000, 2024. It’s going up to 350 in 2025. The reason that’s important is the reality is if you’re a
surgeon making half a million dollars and you have a 3% match at your hospital, the 4:1, and you’re doing a mega
backdoor Roth, they don’t match 3% of 500. They only match 3% in 2025. 3% of that frst 350. So when calculating O
you’re putting in 23,500, you’re getting a match not of your whole salary, just on the frst 350. That’s really important
data to know how much you have left to reach that $70,000 total bucket limit when you don’t when doing the mega
backdoor Roth. And sometimes we found a very few plans.
Speaker 1 – 08:43
Sometimes if you max out too quickly, the match will stop. And some plans only base your contribution based upon
that 350. Some plans base their contribution off of your whole salary. So it’s really important to work with a
professional to look at your plan rule specifcally in your 401k and making sure that maximizing it is a Roth or pre tax
better and also making sure you are in fact getting the free match throughout the year and that you’re not messing it
up. Essentially, given the contribution limits of the IRS plus your plan administrator details specifc to your 401k or
403 plan. Well, I think that’s it. So any Chris, any closing remarks other than, you know, I would say it’s really
important to get right on this in January. Get get all your stuff updated, get your backdoor Roth done, get your 401k
updated.
Speaker 1 – 09:32
Anything else that you would encourage listeners to do?
Speaker 2 – 09:35
No, that’s it. We’ll defnitely be in touch with all of our if you work with ewa, expect us to be in touch to make the
changes. But I think that covers all the limits.
Speaker 1 – 09:44
Was that a shameless plug for ewa, Chris?
Speaker 2 – 09:46
It was, yeah.
Speaker 1 – 09:48
Can’t fght it. Thanks for joining everybody. Thanks for tuning in to our podcast. Hopefully you found this helpful.
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