The IRS announced an increase in the contribution limits for 401(k) plans starting in 2025. Individuals can now contribute $23,500, compared to $23,000 in 2024. This adjustment is part of the IRS's annual cost-of-living updates for pension plans and other retirement savings accounts. Alongside 401(k) plans, those participating in 403(b) plans and the federal government's Thrift Savings Plan will also see the same increase in limits.

Meanwhile, certain retirement contribution limits remain unchanged. The annual contribution limit for an IRA stays at $7,000, and the catch-up contribution limit for individuals aged 50 and over continues to be $1,000 for 2025. Additionally, the IRS has revised the standard deduction thresholds as part of its inflation adjustments for 2025. Single taxpayers and married individuals filing separately will see their standard deduction rise to $15,000, an increase of $400 from 2024. For married couples filing jointly, the deduction will increase to $30,000, which is an $800 gain from the previous year.

Heads of households will benefit from a $22,500 standard deduction, reflecting a $600 increase from 2024. Adjustments have also been made to income thresholds across all seven federal tax bracket levels. In recent updates, the Social Security Administration announced a modest 2.5% cost-of-living increase for benefits starting in January, providing an average monthly increase of over $50 for millions of recipients. This marks the smallest annual cost-of-living adjustment since 2021.

Despite a decrease in inflation from its pandemic-era levels, some advocates for older generations express concerns that the minimal increase in Social Security benefits may undermine the financial stability of U.S. retirees. As inflation continues to influence household budgets, these IRS adjustments seek to offer financial relief and stability during retirement planning.