The Internal Revenue Service (IRS) and the Social Security Administration (SSA) have issued the cost-of-living adjustments (COLA) for 2025. This will assist millions of Americans cope with inflation. Social Security benefits for more than 72 million Americans will increase by 2.5% starting January 2025. At the same time, the IRS has proposed new limits and thresholds for retirement contributions and taxable incomes for the new year.
What Is the 2025 COLA and Who Is Eligible?
Social Security and SSI benefits are adjusted every year for changes in the Consumer Price Index and the cost of living by inflation. For 2025, this means a 2.5% increase in payments. An estimated 68 million Social Security beneficiaries will receive this boost and approximately 7.5 million SSI beneficiaries will have the increase effective December 31, 2024.
IRS Modifications for Retirement and Tax Limits for 2025
Increases in certain benefits also come with new cost-of-living adjusted limits for retirement plans and tax thresholds. For instance, 401(k), 403(b), and 457(b) plans have new limits which will enable Americans to save more in their retirement accounts.
Below, some important IRS retirement and tax limits for 2025 in comparison to 2024 are summarized in the table:
These revisions will allow employees to make more contributions to their retirement accounts which in turn, will reduce their tax income and allow them to prepare better for the future.
How Does This Impact American Employees?
The modification in the Social Security and SSI benefits increases the total benefits, thus giving much needed relief during this economically difficult period for many. At the same time, the relaxed restrictions on retirement savings contributions will allow many to take full advantage of tax benefits.
In addition to that, the increase in the maximum taxable earnings threshold will mean that employees earning more than this threshold will now pay Social Security taxes on more of their income, $176,100 up from $168,600. Employees earning income prior to the full retirement age will also enjoy higher earnings limits without having their benefits reduced.
Concise Answer Section
When does the 2025 COLA go into effect?
For Social Security benefits, the increase will begin in January 2025. SSI payments will adjust at the end of December 2024.
What will the 2025 COLA amount be?
The increase will be set at 2.5%.
Will there be an increase on the retirement savings limits?
Yes, the limit for contributions on various retirement plans, such as the 401(k), will be increased.
