The Internal Revenue Service (IRS) has announced that in 2025, the contribution limit for individuals investing in 401(k) plans will increase. Participants in these plans can contribute up to $23,500, up from $23,000 in 2024, reflecting the IRS's annual cost-of-living adjustments for pension plans and retirement accounts. This new limit also applies to those enrolled in 403(b) plans and the federal government’s Thrift Savings Plan. However, some contribution limits remain unchanged, such as the annual limit for Individual Retirement Accounts (IRA), which stays at $7,000. Additionally, the catch-up contribution limit for individuals 50 years and older remains $1,000 for 2025.

In addition to the adjustments in retirement contributions, the IRS has increased the standard deduction as part of its annual inflation adjustments for the tax year 2025. For single taxpayers and married individuals filing separately, the standard deduction will rise to $15,000, marking a $400 increase from 2024. Couples filing jointly will see their standard deduction increase by $800, reaching $30,000. Heads of households will benefit from a $22,500 standard deduction, up $600 from the previous year. Alongside these changes, the income thresholds for all seven federal tax bracket levels have been revised upwards to accommodate shifting economic conditions.

These changes align with other areas affected by inflation adjustments. Recently, the Social Security Administration declared a 2.5% cost-of-living increase for benefits, effective in January, resulting in an average monthly check increase of over $50 for millions of beneficiaries. These updates aim to mitigate the impacts of inflation, ensuring that savings and benefits maintain their value in the face of rising costs. Fatima Hussein of The Associated Press reports on these key financial changes impacting taxpayers and retirees, offering insights into how these adjustments might affect financial planning in the upcoming years.