Overview
The Internal Revenue Service (IRS) has announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2025.
Most of the dollar limits that are subject to adjustment for cost-of-living increases will increase for 2025. The Social Security Administration released separate adjustment amounts.
In Depth
The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2024 and 2025.*
| RETIREMENT PLAN LIMITS (guidance link) | 2024 | Δ | 2025 |
| Annual compensation limit | $345,000 | ↑ | $350,000 |
| 401(k), 403(b) & 457(b) before-tax contributions | $23,000 | ↑ | $23,500 |
| Catch-up contributions (if age 50 or older) | $7,500 | = | $7,500 |
| Catch-up contributions (individuals who attain age 60, 61, 62, or 63 in 2025) | N/A | $11,250 | |
| Highly compensated employee threshold | $155,000 | ↑ | $160,000 |
| Key employee officer compensation threshold | $220,000 | ↑ | $230,000 |
| Defined benefit plan annual benefit and accrual limit | $275,000 | ↑ | $280,000 |
| Defined contribution plan annual contribution limit | $69,000 | ↑ | $70,000 |
| Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period | $275,000 | ↑ | $280,000 |
| ESOP limit for determining the maximum account balance subject to the general five-year distribution period | $1,380,000 | ↑ | $1,415,000 |
| HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) | 2024 | Δ | 2025 |
| Health Flexible Spending Accounts | |||
| Maximum salary reduction limit | $3,200 | ↑ | $3,300 |
| Health FSA Carryover Limit | $640 | ↑ | $660 |
| Dependent Care Flexible Spending Accounts± | |||
| If employee is married and filing a joint return or if the employee is a single parent | $5,000 | = | $5,000 |
| In employee is married but filing separately | $2,500 | = | $2,500 |
| Excepted Benefit Health Reimbursement Arrangements (EBHRAs) | $2,100 | ↑ | $2,150 |
| Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) | $315 | ↑ | $325 |
| High-Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) | |||
| HDHP – Maximum annual out-of-pocket limit (excluding premiums): | |||
| Self-only coverage | $8,050 | ↑ | $8,300 |
| Family coverage | $16,100 | ↑ | $16,600 |
| HDHP – Minimum annual deductible: | |||
| Self-only coverage | $1,600 | ↑ | $1,650 |
| Family coverage | $3,200 | ↑ | $3,300 |
| HSA – Annual contribution limit: | |||
| Self-only coverage | $4,150 | ↑ | $4,300 |
| Family coverage | $8,300 | ↑ | $8,550 |
| Catch-up contributions (age 55 or older)± | $1,000 | ═ | $1,000 |
| SOCIAL SECURITY WAGE BASE (guidance link) | 2024 | Δ | 2025 |
| Social Security Maximum Taxable Earnings | $168,600 | ↑ | $176,100 |
Plan sponsors should update payroll and plan administration systems for the 2025 cost-of-living adjustments and incorporate the new limits into relevant participant communications, like open enrollment materials and summary plan descriptions.
For further information about applying the new employee benefit plan limits for 2025, contact your regular McDermott lawyer or one of the authors below.
* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year or limitation-year basis.
± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.
