Older workers can now supersize their savings in the biggest 401(K) rule change in decades

Older workers will now be able to contribute more savings to their 401(K) accounts than ever before under new rules starting in 2025.

Each year, the Internal Revenue Service (IRS) announces the maximum amount that savers can contribute to their corporate retirement account, adjusted for inflation.

Americans over 50 can also add additional money to their retirement savings through catch-up contributions.

Starting next year, a higher catch-up contribution limit will apply, particularly to workers between the ages of 60 and 63, the IRS announced on Friday.

The change is intended to help increase the savings of people in their early 60s who may not have set aside enough money earlier in life or may have repeatedly given up working to start a family.

Starting in 2025, workers ages 60 to 63 will be able to make a catch-up contribution of up to $11,5000 to their 401(K) account.

That means people who reach that age sometime next year will be able to contribute up to $34,750 to their company pension plan.

That's about 14 percent more than in 2024 and represents the biggest change to 401(K) contribution rules in two decades, the Wall Street Journal reported.

The change comes as part of a series of IRS inflation adjustments the tax agency makes each year.

The maximum amounts that people of all ages can save into their retirement accounts in 2025 were also announced.

Americans under 50 will be able to contribute up to $23,500 to their 401(K) plans next year – $500 more than in 2024.

Those between 50 and 59 can contribute a total of $31,000, those between 60 and 63 can add $34,750, and those over 64 can add $31,000.

Workers participating in 403(b) and the federal government's Thrift Savings Plan can increase their annual contribution to $23,500 in 2025 from $23,000 in 2024.

However, some annual contributions remain the same.

The limit on annual contributions to an IRA remains at $7,000 and the IRA catch-up contribution limit for those age 50 or older remains at $1,000 through 2025.

Starting in 2025, workers ages 60 to 63 will be able to make a catch-up contribution of up to $11,5000 to their 401(K) account.

The IRS also announced the maximum amounts that people of all ages can save into their retirement accounts in 2025

This comes after the IRS announced an increase in standard deductions for 2025, i.e. the tax-free portion of annual income.

For single and married filing separate tax returns in 2025, the standard deduction increases to $15,000 – a $400 increase from 2024.

For couples filing jointly, the amount will be $30,000 in 2025, an increase of $800 from last year.

Heads of households, meanwhile, will receive a standard deduction of $22,500, an increase of $600 from 2024.

The IRS makes these adjustments every year to account for inflation, which has been declining in recent months.

The annual inflation rate rose 2.4 percent year-on-year in September, a significant decline from the highs of 9.1 percent in June 2022.

That's what that means Even though taxpayers will see higher standard deductions again in 2025, the increases announced last month are smaller than in recent years.