2025 Pension COLAs Announced

401(k), 403(b), 457(b) Pre-Tax Contribution Limit Increases to $23,500 for 2025
The IRS has announced the cost-of-living adjustments (COLAs) to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2025 [Notice 2024-80, 11-1-24].

IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.

• The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) increases to $23,500 (from $23,000).
• The limit on annual additions to defined contribution plans under §415(c)(1)(A) increases to $70,000 (from $69,000).
• The limit on the annual benefit under a defined benefit plan contained in §415(b)(1)(A) increases to $280,000 (from $275,000).
• The annual compensation limit under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) increases to $350,000 (from $345,000).
• The compensation amount under §408(p)(2)(E) regarding elective deferrals to SIMPLE retirement accounts increases to $16,500 (from $16,000).
• The limitation under §457(e)(15) concerning elective deferrals to deferred compensation plans of state and local governments and tax-exempt organizations (§457(b) plans) increases to $23,500 (from $23,000).
• The limitation under §416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan increases to $230,000 (from $220,000).
• The limitation under §414(v)(2)(B)(i) for catch-up contributions to §§401(k), 403(b), and 457(b) plans for individuals age 50 or over remains $7,500.
• The limitation under §414(v)(2)(E)(i) for catch-up contributions to an applicable employer plan other than a plan described in §§401(k)(11) or 408(p) that applies for individuals who attain age 60, 61, 62, or 63 in 2025 is $11,250. This is one of the new SECURE 2.0 Act provisions.
• The limitation under §414(v)(2)(B)(ii) for catch-up contributions to an employer's SIMPLE plan for individuals age 50 and over remains $3,500. The limitation under §414(v)(2)(E)(ii) for catch-up contributions to an applicable employer plan described in §§401(k)(11) or 408(p) that applies for individuals who attain age 60, 61, 62, or 63 in 2025 is $5,250. The limitation under §414(v)(2)(B)(iii) for catch-up contributions to certain accounts or plans described in §§401(k)(11) or 408(p) that generally applies for individuals aged 50 or over remains $3,850.
• The limitation used in the definition of "highly compensated employee" under §414(q)(1)(B) increases to $160,000 (from $155,000).
• The annual compensation limit under §401(a)(17) for eligible participants in certain government plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limit under the plan under §401(a)(17) to be taken into account, increases to $520,000 (from $505,000).
• The compensation amount under §408(k)(2)(C) regarding simplified employee pensions (SEPs) remains $750.
• The compensation amount under Treas. Reg. §1.61-21(f)(5)(i), concerning the definition of "control employee" for fringe benefit valuation purposes, increases to $140,000 (from $135,000). The compensation amount under §1.61-21(f)(5)(iii) increases to $285,000 (from $275,000).
• The limit on annual contributions to an Individual Retirement Arrangement, remains $7,000. The additional catch-up contribution limit for individuals age 50 and over remains $1,000. The SECURE 2.0 Act amended the tax code to provide for annual cost of living adjustments for the over 50 catch-up limit, but the limit remains unchanged for 2025.