Get ready for 2025 — the Internal Revenue Service recently released the 2025 annual inflation adjustments for flexible spending arrangements (FSAs) and retirement plan contribution limits. Health saving account (HSA) limits were announced earlier this year. During open enrollment season, employers may want to communicate these changes to their employees.
Flexible Spending Arrangements (FSAs)
In 2025, eligible employees may annually contribute up to $3,300 to an FSA — also called a flexible spending account — which is an increase of $100 from 2024. For cafeteria plans that permit the carryover of unused amounts, the 2024 maximum carryover amount is $660, an increase of $20 from 2024.
FSAs allow employees to pay for qualified medical expenses not covered by their health plan, including co-pays, deductibles, and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids.
Before the plan year begins, employees will need to decide how much to contribute through payroll deductions, and because FSAs include a use-or-lose provision, employers are encouraged to remind their employees to only contribute what they truly think they’ll spend — otherwise employees’ unspent funds will be forfeited.
Retirement Plan Contributions
In 2025, individuals can annually contribute up to $23,500 to their 401(k) plans, up from $23,000 in 2024. This annual contribution limit also affects employees who participant in 403(b) and governmental 457 plans as well as the federal government’s Thrift Savings Plan.
For Individual Retirement Arrangements (IRAs), the 2025 annual contribution limit will remain at $7,000.
However, new for 2025, the SECURE 2.0 Act of 2022 changes how IRA catch-up contributions for individuals aged 50 or over work. The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most workplace retirement plans remains $7,500, so those participants generally can contribute up to $31,000 each year in 2025.
Now, though, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.
Additionally, the income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025.
Health Savings Accounts (HSAs)
HSAs are pre-tax accounts available to individuals covered under a high-deductible health plan. Eligible individuals can accumulate money, tax-free, in HSAs to pay for qualified medical expenses. As previously reported, the IRS already announced the 2025 HSA limit increases.
Katie Culliton, Editor, CalChamber
CalChamber members can read more about Health Saving Accounts and Private Retirement Savings Plans in the HR Library. Not a member? See what CalChamber can do for you.
