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Come next year, you'll be able to save a little more in your 401(k) account on a tax-deferred basis than you did this year, unless you're in your early 60s, in which case you'll save a lot more for the first time may.

The new contribution limit for 401(k)s and other corporate retirement plans will be $23,500 in 2025, up from the current $23,000, the Internal Revenue Service said Friday.

However, the IRS has not increased the cap on catch-up contributions – which is the additional amount of money that people age 50 and over can contribute annually to tax-advantaged plans such as 401(k)s, 403(b)s, 457 plans, etc. The federal government's savings plan . The catch-up contribution limit remains the same at $7,500.

But taken together, this means that anyone in their 50s can save up to $31,000 for their retirement nest egg next year, and those savings won't be subject to income taxes in 2025.

However, if you turn 60, 61, 62 or 63, your catch-up contribution limit will be even higher for the first time next year thanks to a regulation in the Secure 2.0 pension law. The IRS said the amount will be set at $11,250, or 150% of the general catch-up provision. That means people of this age can save up to $34,750.

Now to the reality: Most people don't max out their 401(k) savings, regardless of the applicable contribution limit.

Vanguard found in its 2024 report “How America Saves” that as of 2023, only 14% had maxed out their 401(K) savings. “Participants who contributed the maximum dollar amount tended to have higher incomes, were older, had longer tenure with their current employer, and had accumulated significantly higher account balances,” the report said.

Still, unless the U.S. retirement system is reformed to provide retired workers with adequate income beyond what Social Security provides, the majority of private sector workers will remain pensionless depend on the savings they accumulate in company savings plans and elsewhere.

The IRS has not increased contribution limits for individual retirement accounts, called IRAs. The annual cap will remain at $7,000 next year and the catch-up contribution for those age 50 and older will remain $1,000.

However, the modified adjusted gross income thresholds that determine whether you are eligible to contribute to an IRA on a tax-deferred basis have been increased.

Starting with Roth IRAs — where your contributions are subject to income tax the year you make them, but then typically never again — as a single person, you can only contribute to a Roth the next year if your AGI doesn't exceed 165,000 US dollars is US$161,000. If you are married and filing jointly, your AGI cannot exceed $246,000 – up from $240,000 this year.

For a traditional IRA, where your contributions are deductible the year you make them and then tax-deferred until you withdraw them in retirement, your modified AGI cannot exceed $89,000 if you are single and are covered by a company pension plan, up from $87,000 this year. If you are married, filing jointly, and are personally covered by a workplace retirement plan, your joint modified AGI cannot exceed $146,000 (instead of $143,000). The limits are slightly different if your spouse is the one on the workplace plan but you are saving in an IRA.

Low- and middle-income workers who are saving something — anything — for retirement may be eligible for the saver credit, which is a dollar-for-dollar reduction in their tax bill.

To be eligible next year, the IRS raised the income limit for singles to $39,500, up from $38,350 this year; from $57,375 to $59,250 for heads of household; and to $79,000 (from $76,500) for married couples filing jointly.

Here's a helpful explanation of how Fidelity credit works.