The IRS has announced the retirement plan contribution limits for 2025, and the numbers include a notable new feature: the SECURE 2.0 Act's enhanced catch-up contribution for participants aged 60 through 63. Combined with modest increases to the standard contribution limits, these changes create new planning opportunities for business owners and their employees.^[1]

401(k), 403(b), and 457 Plans

The elective deferral limit for 401(k), 403(b), and most 457 plans increases to $23,500 for 2025, up from $23,000 in 2024. The standard catch-up contribution for participants aged 50 and over remains at $7,500, bringing the total potential deferral for those participants to $31,000.

The significant change for 2025 is the new SECURE 2.0 enhanced catch-up contribution for participants who are aged 60, 61, 62, or 63 at any time during the calendar year. These participants may make catch-up contributions of the greater of $10,000 or 150 percent of the regular catch-up amount — which for 2025 means $11,250 (150 percent of $7,500). This brings the total potential deferral for participants in this age group to $34,750. Importantly, for participants with compensation above $145,000 in the prior year, these enhanced catch-up contributions must be designated as Roth contributions.^[2]

Overall Defined Contribution Limit

The total annual addition to a defined contribution plan — including employer contributions, employee deferrals, and forfeitures — increases to $70,000 for 2025, up from $69,000 in 2024. For participants aged 50 and over, the limit is $77,500 ($70,000 plus the $7,500 catch-up). For participants aged 60 through 63, the limit is $81,250 ($70,000 plus $11,250).

This overall limit is relevant for business owners who use profit-sharing contributions or employer matching to maximize their tax-deferred savings. A business owner who is the sole employee of an S corporation, for example, can contribute up to $70,000 through a combination of salary deferrals and employer profit-sharing contributions (subject to the compensation limits).

IRA Contributions

The IRA contribution limit remains unchanged at $7,000 for 2025 ($8,000 for those aged 50 and over). The income phase-out ranges for deductible traditional IRA contributions and Roth IRA eligibility have been adjusted modestly upward. For Roth IRAs, the phase-out range is $150,000 to $165,000 for single filers and $236,000 to $246,000 for married couples filing jointly.^[3]

SEP and SIMPLE Plans

The SEP IRA contribution limit increases to $70,000 for 2025 (the same as the overall defined contribution limit). The SIMPLE IRA contribution limit increases to $16,500, with a catch-up of $3,500 for those aged 50 and over and an enhanced catch-up of $5,250 for those aged 60 through 63. SIMPLE plans at employers with 25 or fewer employees may use the higher limits of $17,600 and the corresponding enhanced catch-up amounts.

Compensation Limits

The annual compensation limit for retirement plan purposes increases to $350,000 for 2025, up from $345,000 in 2024. This is the maximum amount of an employee's compensation that can be taken into account when calculating employer contributions and testing plan compliance. For highly compensated employees, the threshold is $160,000 (based on 2024 compensation for the 2025 plan year).

Planning Considerations

For business owners, the 2025 limits present several planning opportunities. First, the enhanced catch-up for ages 60 through 63 is a significant new benefit that should be factored into retirement planning projections. A participant in this age range can contribute an additional $3,750 per year compared to the standard catch-up, which over four years amounts to $15,000 in additional tax-deferred (or Roth) savings. Second, plan documents may need to be amended to accommodate the new enhanced catch-up and the mandatory Roth designation for high earners. Plan sponsors should work with their plan administrators and legal counsel to ensure timely amendments. Third, the interaction of these limits with the Section 199A deduction, the net investment income tax, and other provisions means that the optimal contribution strategy depends on the business owner's overall tax picture — not just the retirement plan rules in isolation.^[4]