If you intend to contribute to an individual retirement account in 2025, the maximum amount you can stash away is $7,000, the same as in 2024.
For savers age 50 and older, the catch-up amount remains $1,000, for a total contribution of $8,000.
However, there were some changes from the previous year.
— The income thresholds for those contributing to a Roth IRA will increase in 2025.
— Single and head-of-household filers with a modified adjusted gross income of less than $150,000 may contribute the full $7,000 in after-tax dollars. That’s up from $146,000 in 2024.
— Those with MAGI between $150,000 and $165,000 may contribute a reduced amount.
— Those whose MAGI exceeds $165,000 may not contribute to a Roth.
— Married couples filing jointly may each contribute $7,000 to a Roth, with the over-50 catch-up amount remaining $1,000 each.
— For married couples filing jointly, the income phase-out range for a Roth contribution is between $236,000 and $246,000, up from between $230,000 and $240,000 in 2024.
— Couples whose income exceeds $246,000 may not contribute to Roth IRAs.
— Beginning in 2025, workers between 60 and 63 can make extra catch-up contributions.
[Related:How to Save in a 401(k) and IRA in the Same Year]
How Much Should You Contribute?
Typically, contributing the maximum amount is the best long-term financial strategy. However, your contribution amount will vary depending on your saving goals.
For example, your goals may include saving on taxes now, anticipating being in a lower tax bracket later in life, said Matthew Pogirski, owner of Unburdened Financial Planning in Wasilla, Alaska, in an email. They may also include maximizing Roth IRA accounts to provide tax-free income in retirement.
“A lot depends upon where you are in your current marginal income tax brackets and where you will be in the future,” he said, adding that investors should consider current and future tax strategies as well as estimated retirement income and legacy planning.
Long-Term Benefits of Maxing Out Your IRA
“Maxing out your IRA can make a world of difference over time, thanks to the power of compounding,” said Rob Edwards, CEO of Edwards Asset Management in Naples, Florida, in an email.
“When you’re consistent with contributions, even if it’s just meeting the annual limit, you’re building a stronger foundation for the future,” he added.
Edwards also cited the tax advantages of maxing out an IRA, which allows for tax-deferred or tax-free growth, depending on whether you choose a Roth or traditional IRA.
“Those extra dollars can add up to substantial gains over the decades, giving you a more comfortable and financially secure retirement,” Edwards said.
[Read: How to Convert to a Roth IRA]
IRA Pitfalls to Avoid
While contributing to an IRA offers tax benefits, some savers may face problems if they’re not careful.
For example, exceeding the contribution limit can lead to penalties, although it’s possible to reverse an over-contribution if you catch it before your tax filing deadline.
Early withdrawals are also penalized, except in specific cases. Additionally, choosing between a traditional and a Roth IRA can be tricky, as tax advantages may depend on current versus future income and whether you expect taxes to rise.
“Contributing more to your IRA is a smart move, but be cautious not to overcommit,” Edwards said. “Some people might get so focused on maxing out their retirement accounts that they forget about immediate needs like an emergency fund or having enough liquidity.”
Edwards emphasized maintaining a balance between saving for retirement and covering current needs.
“A solid approach is to prioritize an emergency fund first, then work up to those higher retirement contributions as your financial situation allows,” he said.
[Read: How to Take Required Minimum Distributions]
Catch-Up Contributions for Those Over 50
Retirement savers over 50 may contribute an additional $1,000 to an IRA in 2025. That amount hasn’t changed from 2024.
However, workers between the ages of 60 and 63 may contribute more if they participate in a Savings Incentive Match Plan for Employees IRA, also known as a SIMPLE IRA. These plans are established by small businesses for employees.
“I often have clients sharing they feel poorly they didn’t start sooner in saving for their retirement,” said Pogirski.
He added that he tells clients the familiar adage that while the best time to plant a tree was decades ago, the second-best time is today.
“These catch-up contributions help us plant more trees today,” he said. “If you couldn’t start saving younger, we are given the ability through catch-up contributions to save more and help make up for missed time.”
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What Are the IRA Contribution Limits for 2025? originally appeared on usnews.com
Update 11/12/24: This story was previously published at an earlier date and has been updated with new information.
