How Much Can I Put Into My Pension?

Understanding how much you can contribute to various retirement accounts is an important aspect of financial planning. The Internal Revenue Service (IRS) establishes specific limits on contributions to different types of retirement plans each year. Navigating these rules allows individuals to maximize their savings for the future while complying with federal regulations. Different retirement vehicles, such as those offered by employers or those set up individually, have distinct contribution guidelines.

Contribution Limits for Employer-Sponsored Plans

Employer-sponsored retirement plans, such as 401(k)s, 403(b)s, governmental 457(b) plans, and the Thrift Savings Plan (TSP), have similar contribution structures for employee deferrals. For the 2025 tax year, employees can contribute up to $23,500 to these plans through elective deferrals from their salary. This limit applies to the total amount an employee can contribute across all such plans, even if they participate in more than one through different employers.

Beyond employee contributions, overall limits apply to the total amount contributed to an individual’s account from all sources within a year. This includes employee elective deferrals, employer matching contributions, and employer profit-sharing contributions. For 2025, total contributions from both employee and employer to a defined contribution plan, such as a 401(k) or 403(b), cannot exceed $70,000 under IRS Section 415.

The nature of contributions, whether pre-tax or Roth, does not alter the fundamental contribution limits. Both traditional and Roth contributions count towards the same employee elective deferral limit. For example, if an individual contributes to both a traditional 401(k) and a Roth 401(k), their combined contributions cannot exceed the $23,500 employee limit for 2025.

Governmental 457(b) plans and the Thrift Savings Plan (TSP) adhere to the same employee elective deferral limits and overall total contribution limits as other employer-sponsored plans.

The IRS periodically adjusts these contribution limits for inflation. Staying informed about these annual changes helps maximize retirement savings and ensures compliance with federal tax law.

Contribution Limits for Individual Retirement Accounts

Individual Retirement Accounts (IRAs) include both Traditional and Roth options. For 2025, the direct contribution limit for individuals under age 50 to either a Traditional or Roth IRA is $7,000. If an individual contributes to both, their combined contributions cannot exceed this annual limit.

Contributions to an IRA must come from earned income, which includes wages, salaries, tips, bonuses, and net earnings from self-employment. There are no age restrictions for contributing to a Roth IRA, meaning individuals of any age with qualifying earned income can contribute.

Income phase-out rules affect the deductibility of Traditional IRA contributions and eligibility for Roth IRA contributions. For Traditional IRAs, if an individual is covered by a retirement plan at work, the deductibility of their contributions may be reduced or eliminated based on their Modified Adjusted Gross Income (MAGI). For 2025, single filers covered by a workplace plan may have their deduction phased out with MAGI between $79,000 and $89,000. Married couples filing jointly, where the contributor is covered, face a phase-out range of $126,000 to $146,000. If neither the taxpayer nor their spouse is covered by a workplace plan, Traditional IRA contributions are generally fully deductible regardless of income.

Roth IRAs also have income limitations that determine eligibility to contribute. For 2025, single filers can make a full Roth IRA contribution if their MAGI is less than $150,000. The ability to contribute is then phased out for single filers with MAGI between $150,000 and $165,000, and no direct contributions are allowed if MAGI is $165,000 or more. For married couples filing jointly, the full contribution is available if MAGI is less than $236,000, with a phase-out range between $236,000 and $246,000, and no direct contributions allowed at or above $246,000.

Contribution Limits for Self-Employed Retirement Plans

Self-employed individuals and small business owners have several retirement plan options, including Solo 401(k)s, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs. The contribution limits for these plans are often calculated as a percentage of net self-employment earnings, up to specific annual maximums.

The Solo 401(k) is for self-employed individuals with no employees other than a spouse, allowing contributions in two capacities: as an employee and as an employer. For 2025, an individual can contribute up to $23,500 as an employee elective deferral. Additionally, the business can contribute up to 25% of the individual’s compensation as an employer profit-sharing contribution. The combined total of employee and employer contributions to a Solo 401(k) cannot exceed $70,000 for 2025. The IRS limits the amount of compensation that can be considered for these contributions, set at $350,000 for 2025.

SEP IRAs are employer-funded plans for self-employed individuals and their eligible employees. Contributions to a SEP IRA are made solely by the employer and are calculated as a percentage of compensation, up to a maximum dollar amount. For 2025, the maximum contribution to a SEP IRA is the lesser of 25% of an employee’s compensation or $70,000. Unlike other plans, SEP IRAs do not permit employee elective deferrals or catch-up contributions. The compensation limit for calculating SEP IRA contributions is $350,000 for 2025.

SIMPLE IRAs are designed for small businesses with 100 or fewer employees and involve both employee and employer contributions. For 2025, employees can contribute up to $16,500 through salary reduction. Employers are generally required to make contributions, either by matching employee contributions dollar-for-dollar up to 3% of the employee’s compensation, or by making a non-elective contribution of 2% of the employee’s compensation. The employer’s contribution to a SIMPLE IRA is limited by the annual compensation cap, which is $350,000 for 2025.

Factors Affecting Your Contribution Capacity

Beyond the standard limits for various retirement plans, several factors can influence or increase an individual’s capacity to save for retirement. These considerations help optimize long-term financial security.

Catch-up contributions allow individuals aged 50 and over to contribute additional amounts beyond the regular limits. For 2025, individuals aged 50 or older can contribute an additional $7,500 to most employer-sponsored plans, including 401(k)s, 403(b)s, governmental 457(b) plans, and the TSP. This means an employee aged 50 or older could contribute up to $31,000 to their 401(k) in 2025 ($23,500 regular + $7,500 catch-up). For IRAs, the catch-up contribution for those aged 50 and over remains $1,000 for 2025, bringing the total IRA contribution limit to $8,000 for eligible individuals.

A special enhanced catch-up contribution applies for individuals aged 60, 61, 62, and 63 who participate in certain employer-sponsored plans like 401(k)s, 403(b)s, and governmental 457(b) plans. For 2025, this higher catch-up contribution limit is $11,250. This allows individuals in this age bracket to contribute up to $34,750 to these plans ($23,500 regular + $11,250 enhanced catch-up). Similarly, for SIMPLE IRAs, the catch-up contribution for those aged 50-59 or 64 and older is $3,500, while those aged 60-63 can contribute an enhanced catch-up of $5,250 in 2025.

Income limitations can effectively reduce the amount an individual can contribute or the tax benefits they receive. Modified Adjusted Gross Income (MAGI) thresholds determine eligibility for direct Roth IRA contributions and the deductibility of Traditional IRA contributions if covered by a workplace plan. If an individual’s income exceeds these thresholds, their ability to contribute to these accounts may be phased out or eliminated, even if they are below the standard contribution dollar limit.

Contributing to multiple types of retirement plans can significantly increase overall savings capacity. The contribution limits discussed are typically per-plan type, unless explicitly stated otherwise. For instance, an individual can contribute the maximum to their 401(k) and also contribute the maximum to an IRA in the same tax year, allowing for greater total retirement savings.