Americans saving for retirement will benefit from increased contribution limits for their 401(k) accounts in 2025, following a decision by the IRS. However, these adjustments come alongside the sweeping changes brought by the newly signed One Big Beautiful Bill Act, which is set to alter the retirement landscape for older savers.
The new tax law, signed into law in July 2025, not only raises the elective deferral limits for 401(k) plans but also introduces changes with far-reaching consequences. While some of these shifts offer expanded opportunities for saving, they also bring uncertainty for the future, especially for those relying on tax-advantaged retirement accounts.
New 401(k) Contribution Limits
For 2025, the IRS has increased the contribution limit for 401(k), 403(b), and 457 plans to $23,500, a rise from the previous limit of $23,000. Additionally, for those aged 50 and above, the catch-up contribution limit remains at $7,500, allowing total contributions of up to $31,000 for eligible individuals.
Those between 60 and 63 will benefit from a special catch-up provision, with the possibility of contributing as much as $34,750, according to IRS Notice 2024-80.
These changes come amid a larger shift in retirement savings legislation, prompted by the One Big Beautiful Bill Act. While the bill brings opportunities for increased savings, it also ushers in uncertainty, especially regarding the future treatment of Roth IRAs and large 401(k) accounts.
The Impact of the One Big Beautiful Bill Act
Signed into law on July 4, 2025, the One Big Beautiful Bill Act introduces substantial reforms to the fiscal landscape for retirees, with particular emphasis on tax-advantaged retirement accounts. A key change involves potential future shifts in the treatment of Required Minimum Distributions (RMDs).
While the bill does not affect the existing glide path that raises the RMD age to 75, it mandates the Treasury Department to explore extending RMDs to Roth IRAs and large 401(k) accounts.
This could lead to significant changes in how these accounts are taxed, particularly for individuals relying on Roth IRAs for tax-free growth. Additionally, the bill introduces a Senior Deduction to reduce the tax burden on Social Security income for individuals aged 65 and above.
Although the reduction doesn’t fully eliminate federal taxes on Social Security, it could provide relief to a large portion of retirees. Furthermore, the bill increases the federal estate and gift tax exemption to $15 million per individual from 2025, enabling retirees and wealthy individuals to shield more wealth from estate taxes.
However, with these temporary tax perks set to expire in 2028, many financial experts are advising retirees to take advantage of the current landscape before it changes.
In addition to the 401(k) changes, the One Big Beautiful Bill Act introduces several other important modifications for retirees. Among these, the expansion of 529 plan flexibility stands out, allowing K-12 tutoring, caregiving certifications, and rollover protections to Roth IRAs.
However, the bill also makes significant cuts to Medicaid and Affordable Care Act subsidies, reducing funding by over $1 trillion. While Medicare remains untouched, the cuts introduce new challenges for older adults, particularly through stricter asset-verification requirements set to take effect by 2026.
