Changes to 401(k)s You Should Know about for 2025
401(k) plans are one of the most popular retirement savings tools in the United States. For 2025, several changes are on the horizon, particularly regarding contribution limits for different groups and new IRS developments that could impact business owners. Staying informed about these updates ensures that individuals and employers alike can maximize their 401(k) benefits and plan effectively. Keep reading to learn what you know about changes to 401(k)s in 2025.
Increased Contribution Limits for 2025
Each year, the IRS reviews and adjusts 401(k) contribution limits to account for inflation and other economic factors. For 2025, contribution limits are expected to rise once again, giving employees the opportunity to set aside even more for retirement.
- Standard Contribution Limits: The standard annual limit for employee contributions to a 401(k) plan is expected to increase. In 2024, this limit is $23,000, and for 2025, that amount will increase by $500 for a total annual contribution limit of $23,500.
- Catch-Up Contributions: Employees aged 50 and older currently benefit from “catch-up contributions,” which allow them to contribute more to their 401(k)s to accelerate retirement savings. In 2024, this limit stands at $7,500 on top of the standard contribution. For 2025, that amount actually won’t be changing—unless you’re between the ages of 60 and 63. Those that fall in this age range can contribute up to $11,250 do their 401(k) plans.
- Total Contribution Limits: The total annual limit, which includes employee contributions, employer matching, and other contributions, is also set to rise. For 2024, the total limit is $68,000 (excluding the permitted catch-up contributions). In 2025, businesses and employees can contribute a total of up to $70,000 for the year into each employee’s 401(k).
These increases are good news for employees who want to maximize their retirement savings and take advantage of the tax benefits associated with 401(k) contributions. Business owners, in particular, should ensure their payroll systems and plan documentation are updated to reflect the new limits for 2025.
New IRS Ruling on 401(k) Matching Contributions
In an important ruling, the IRS recently addressed a request from a business that was seeking permission to apply 401(k) matching contributions to something other than an employee’s 401(k). More specifically, the business requested to apply matching contributions that were made to qualifying student loan payments and HSAs. The IRS approved the request, setting a new precedent for how these kinds of funds can be allotted. While the ruling currently only applies to the specific business that filed the request, it does open up the possibility that this option will be extended to other businesses in the future.
How would this work? Traditionally, employers match contributions based on the amount employees contribute to their 401(k) plans. However, under this new provision, employees who are unable to save for retirement because they are paying off student loans can still receive matching contributions. Employers can now make a matching contribution to the 401(k) plan based on an employee’s verified student loan payments, even if the employee does not contribute directly to the retirement plan.
For many employees, especially younger workers burdened by student loan debt, saving for retirement has been challenging. This ruling ensures that employees do not have to choose between repaying student loans and building their retirement savings. If employers are allowed to adopt this provision in the future, they can offer greater financial support to their workforce and attract top talent by demonstrating a commitment to their employees’ overall financial well-being.
Potential Implications for Business Owners
While this ruling is not yet applicable to any other business owners, it has significant implications for businesses and plan administrators, should the change be widely adopted in the future:
- Employee Retention and Recruitment: Offering student loan-based matching contributions can be a compelling benefit for attracting and retaining younger workers. With student loan debt affecting millions of Americans, this provision shows that employers understand and are addressing a major financial concern.
- Administrative Adjustments: Employers who choose to adopt this rule must update their plan documents and systems to accommodate this new type of matching contribution. Employers will also need to verify student loan payments, which may involve additional administrative processes.
- Future Regulatory Trends: While this ruling is currently optional, it highlights a shift in how the IRS and lawmakers are rethinking retirement benefits. Business owners should stay alert to future changes that could make such provisions mandatory or extend them further.
Preparing for 2025: What Employers Should Do Next
Given the upcoming changes to 401(k) contribution limits and the new IRS ruling, employers should take proactive steps to align their plans with these updates. Confirm that payroll systems and plan documentation are updated to reflect the increased contribution limits for 2025. Communicate upcoming changes, including the new contribution limits and catch-up contribution options. Provide resources to help employees understand how these changes can benefit them. Work with plan administrators and financial advisors to ensure your 401(k) offerings are competitive, compliant, and aligned with your organization’s goals.
The changes to 401(k) plans for 2025 reflect the growing recognition of evolving financial challenges, particularly for employees grappling with student loan debt. Increases to contribution limits empower savers to invest more for their future, while the new IRS ruling on matching contributions provides hope that, sometime soon, employees will be able to pay off student loan debts while simultaneously contributing to their own financial futures.