Are you above the age of 50? Do you and/or your spouse have a 401(k)? Are you interested in reducing the amount you will have to pay in 2025 income taxes while increasing the amount of money you receive after retirement? Those above the age of 50 should analyze increased tax advantages of 401(k) contributions in 2025 and beyond compared to other savings and investment options.
If you are 50 years of age or older, you are eligible to make additional contributions to your retirement accounts (above the maximum individual contribution level) in order to “catch up” on retirement contributions you may not have been in a position to make in the past. The potential benefits are even more significant for those aged 60 to 63 years.
The IRS has announced changes for next year that will affect the investment plans of every individual who contributes to a 401(k) retirement plan, especially those above the age of 50. The maximum individual contribution for a 401(k) was $23,000 in 2024. This will be increased to $23,500 for 2025. While less than 15% of U.S. taxpayers will contribute the maximum amount to their 401(k) account(s), substantial financial advantages and incentives exist for those who may wish to reconsider these decisions.
Catch-up contributions will continue to be limited to an additional $7,500 for those between the ages of 50 and 59 for 2025. However, the catch-up contributions for those aged 60 to 63 will be $11,250 next year. If you or your spouse are concerned about the amount you will have available upon retirement, the catch-up contributions provide an additional tax-free incentive to improve your future outlook.
Would you each like to pay $1,000 less on your 2025 income tax bill? The IRS “Saver’s Credit” is another reason why U.S. taxpayers above the age 50 should analyze increased tax advantages of 401(k) contributions in 2025. The Saver’s Credit of up to $1,000 for single filers and $2,000 for married individuals filing a joint return is applied directly to the amount of tax you owe. The Saver’s Credit can be 10%, 20%, or even 50% of your contribution based upon your adjusted gross income based upon limits of $39,500 for those who are single, married filing separately, or a qualifying widow or widower, $59,250 for those filing as head of household, and $79,000 for those who are married filing jointly. This is an increase of almost 4% over 2024 levels.
It is in the interest of every working American to make consistent contributions to a 401(k) or other retirement plan, especially when your employer is matching part or all of your contribution. However, those above the age of 50 should analyze increased tax advantages of 401(k) contributions in 2025 and beyond when compared to other savings and investment options. The ability to increase your retirement plan contributions and/or make additional catch-up contributions could be one of the best financial decisions you can make for 2025.
Retirement and 401(k) account contributions are an important element in estate planning, domestic and international tax planning for 2025 and beyond. We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us, or call today to schedule a free consultation at 866-631-3470 to learn more about the impact of these changes on your unique circumstances and how to maximize the success of your retirement planning.