2025 SIMPLE IRA limit at smaller employers
SECURE 2.0 Act gave smaller employers a 10% higher contribution limit for their SIMPLE IRAs. It’s $17,600 for regular contributions and $3,850 for catch-up contributions in 2024 versus $16,000 and $3,500 respectively at larger employers.
However, for 2025, these limits were held unchanged while the regular contribution limit at larger employers increased from $16,000 to $16,500.
How come? Shouldn’t the $17,600 limit at smaller employers in 2024 increase to $18,000 in 2025 (adjust for inflation and round down to the nearest $500)? Similiarly, shouldn’t the $3,850 catch-up limit at smaller employers in 2024 go down to $3,500 in 2025 (adjust for inflation and round down to the nearest $500)?
I appreciate any insights anyone has on this odd outcome.
Permalink Submitted by Alan - IRA critic on Sun, 2024-11-17 13:08
In just released IRS Notice 2024-80, the limits were stated as follows:
“The limitation under section 408(p)(2)(E)(i)(III) that generally applies to salary
reduction contributions under a SIMPLE retirement account or elective
contributions under a SIMPLE 401(k) plan is increased from $16,000 to $16,500.
The limitation for certain of those accounts or plans under
section 408(p)(2)(E)(i)(I) or (II) remains $17,600.”
“The limitation under
section 414(v)(2)(B)(iii) for catch-up contributions to certain accounts or plans
described in section 401(k)(11) or section 408(p) that generally applies for
individuals aged 50 or over remains $3,850”.
I don’t know where to access the rounding calculations the IRS used to come up with these limits, but limits differ for >25 employees depending on whether the plan has increased their match %s, leaving 3 possible sets of basic deferral and catch up limits. But it does appear that the IRS did not apply the inflation factor to 17,600 as that should have pushed the limit over 18,000. The applicable code sections are so convoluted it would be no surprise if the IRS erred in their calculations.