401(k) contribution limits for employees in 2025

Overview of 2025 contribution limits

The IRS has bumped up 401(k) contribution limits for 2025 by $500, giving you and your employees more room to grow their retirement savings. As outlined below, this increase raises the total contribution limit, which varies depending on employee age.

• Employees under 50: These workers can make personal 401(k) contributions of up to $23,500 per year. Their employers may also contribute up to $46,500 per year, bringing the total combined employee and employer contribution limit to $70,000.
• Employees over 50: Employees over this threshold are allowed to make catch-up contributions of up to $7,500 per year on top of their $23,500 limit, bringing their personal contribution limit to $31,000. Like employees under 50, they may also receive employer contributions of up to $46,500, making the combined annual total contribution limit $77,500.

These contribution limits apply to traditional and Roth 401(k) plans. If your plan offers both options, then you and your employees can split contributions between them as long as the total doesn’t exceed the annual IRS 401(k) limits for 2025.

SECURE 2.0 Act enhancements

The SECURE 2.0 Act continues to reshape retirement planning for small businesses, with several important provisions taking effect in 2025. If you’re a small business owner offering a 401(k) plan, then these changes create new opportunities for you and your employees to boost their retirement savings.

One of the most important changes is the increased catch-up contribution limit for employees between the ages of 60 to 63. While the standard catch-up limit for those 50 and older stays at $7,500 for 2025, employees in this specific age bracket can contribute a total of $34,750 to their 401(k) plans in 2025, compared to $31,000 for those ages 50–59. This four-year window gives them a fantastic opportunity to supercharge their savings while approaching retirement.

The SECURE 2.0 Act also introduces the following important changes that may affect your responsibilities as an employer:

• For small businesses: Businesses with 10 or fewer employees are exempt from the new automatic enrollment requirement that applies to plans established after December 29, 2022.
• For part-time workers: Starting in 2025, part-time employees who work at least 500 hours for two years in a row must be allowed to participate in your 401(k) plan. This is a one-year reduction from the previous three-year requirement.

These 2025 changes to the SECURE 2.0 Act can impact retirement planning strategies for you and your employees. For workers in their early 60s, the higher catch-up limit gives them a valuable savings opportunity right before retirement. It’s a good idea to let eligible employees know about these changes so they can take full advantage of this four-year savings window.

For your business, these provisions may require updates to your payroll systems and plan documents. You’ll need to follow these new rules starting in 2025, but you have until December 31, 2026, to formally update your plan documents. This gives you some flexibility with the paperwork, but the actual changes to contribution limits and eligibility must be implemented on time.

Next, it makes sense to see how contributions cap during the year as individuals build a nest egg.

Employer contribution limits

When you contribute to your employees’ 401(k) accounts, you’re helping them build a more secure future, while cultivating loyalty. More than half of employees agree they would switch jobs for better benefits, and, considering that retirement plans are the second-most important benefits for employees, it makes sense to offer package that turns heads. However, these employer contributions have limits that are separate from employee contributions.

For 2025, the total combined contribution limit, including both employee and employer money, is $70,000 for employees under 50 and $77,500 for those 50 and up. Your contributions as an employer can fill the gap between what your employee puts in and these total limits.

For example, say you own a dental practice with five employees. The national average employer contribution is 4.5%, so say you’re offering exactly that. An employee making $60,000 a year and contributing 6% of their salary would be contributing $3,600. At a 4.5% employer contribution, they would be receiving $2,700 per year from you. That’s a $2,700 bonus going straight into their retirement account for making smart financial choices.

Comparing different retirement plans

There are more options than just a traditional 401(k) when it comes to retirement plans. Each plan has different contribution limits and benefits that might make it a better fit for specific employees and types of businesses. The outline below summarizes how they stack up for 2025.

• Traditional 401(k): This type of plan offers the highest contribution limits – $23,500 for employee contributions and $70,000 for combined contributions. This plan is best for established businesses that want to offer comprehensive benefits and have the resources to handle a more complex plan.
• SIMPLE 401(k): This is a 401(k) for small businesses with 100 or fewer employees. Employee contribution limits are lower at $16,500 for 2025, but this type of plan requires less paperwork and testing than a traditional 401(k). It’s perfect for growing businesses that want to offer retirement benefits without a heavy administrative burden.
• SEP IRA: This plan allows employers to contribute up to 25% of an employee’s compensation, with a limit of $69,000 for 2025. Only employers can contribute to SEP IRAs, not employees. This can be ideal for very small businesses or self-employed workers looking for simplicity and higher contribution limits.
• Solo 401(k): This plan is for business owners with no employees. It combines employee and employer contributions for potentially higher limits than SEP IRA. A solo 401(k) is great for self-employed professionals or independent contractors.

The ideal plan for you depends on your business size and how much administrative work you’re willing to assume. Many small businesses start with a SIMPLE 401(k) plan or a SEP IRA and graduate to a traditional 401(k) as they grow.