Here’s how to prepare your finances for the impending changes to 401(k) and IRAs in 2025

The two main varieties of private retirement accounts in the US are 401(k)s and IRAs (Individual Retirement Accounts). The two differ based on when the owner pays taxes on the funds transferred. In the case of a 401(k), the funds are taxed when they are taken out, whereas they are taxed when they go into a Roth IRA.

What you need to know about your 401(k) in 2025

To incentivize retirement savings, the federal government allows holders of a 401(k) to transfer funds into the account before their income is taxed, meaning that one’s overall taxable income for the years is reduced.

In 2025, workers can place $23,500, up $500 from 2024, into their 401(k) and deduct that amount from their taxable income. This is the same for 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan. Any additional contributions cannot be deducted unless you are over 50. As one gets closer to retirement, the federal government will allow one to place $31,000 into their 401(k) starting in 2025.

If being able to deduct this amount from your annual taxable income keeps you in a lower tax bracket, it might be a productive way to save.

What you need to know about your IRA or Roth IRA

The limit for an Individual Retirement Account (IRA) or Roth IRA is $7,000, or $8,000 for those over 50. These amounts are unchanged from 2024 and cannot be deducted from a worker’s taxable income.

An individual’s tax filing status determines the contribution limit to an IRA.

In 2025, individuals filing as single can contribute the full $7,000 (or $8,000 if aged over 50) if their income is below $150,000. However, this amount gradually decreases for incomes over $150,000, and those earning more than $165,000 are not permitted to contribute to an IRA. For married couples filing jointly, contributions are allowed if their combined income is less than $236,000 in 2025. Couples whose income exceeds $246,000 are not eligible to contribute to an IRA.

The IRS enforces these regulations to prevent the use of retirement accounts for tax evasion.

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