To enjoy a good quality of life during retirement, it’s generally recommended to have savings or other income sources in addition to Social Security.

The average retiree currently receives about $1,922 monthly in Social Security, amounting to around $23,000 a year. While this can barely cover essential expenses, it doesn’t leave much for leisure activities such as travel or hobbies.

If you’re aiming to save for retirement, you have a few options. You could join an employer-sponsored retirement plan. However, if that’s not an option for you, an individual retirement account (IRA) could be a strong alternative.

The IRS has just revealed the IRA contribution limits for 2025. If you’re planning to fully fund your IRA, this information is vital.

IRA limits remain unchanged in 2025

The contribution limits for IRAs are currently set at $7,000 for individuals under 50 and $8,000 for those aged 50 and above. These amounts will remain constant for 2025.

This might be unexpected for those familiar with the SECURE 2.0 Act of 2022, which permitted annual adjustments based on the cost of living for IRA catch-up contributions. However, just because there is a possibility for an adjustment does not mean it will happen every year. Therefore, the catch-up contribution limit stays at $1,000 for 2025.

The advantages of contributing to an IRA for retirement

A downside of IRAs is their lower contribution limits compared to 401(k) plans. Next year, the 401(k) contribution limit will be $23,500 for those under 50 and $31,000 for those 50 and older. Furthermore, many employers provide matching contributions to 401(k) plans to help employees save more.

However, an IRA can still offer several benefits. For instance, contributions to a traditional IRA can help you reduce some of your taxable income. Additionally, IRAs have several advantages over 401(k) plans.

First, you can set up an IRA at any financial institution that offers such accounts. This allows you to compare and choose a retirement plan that suits your needs. In contrast, with a 401(k), you can only select the plan provided by your employer.

Second, IRAs give you the freedom to choose individual stocks for your investment portfolio, while 401(k) plans usually restrict you to a limited selection of mutual funds. This flexibility can be beneficial for various reasons:

You gain complete control over your investments, and some 401(k) funds might charge high fees (known as expense ratios) that can diminish your returns significantly. With an IRA, you can avoid high investment fees and construct a portfolio with the potential for better returns than the overall stock market.

Although it’s unfortunate that IRA contribution limits are not increasing in 2025, maximizing your contributions can still greatly benefit your retirement savings for the upcoming year.

Don’t forget, you are not restricted to saving only $7,000 or $8,000 in your IRA this year. After reaching your IRA limit, you can also contribute to other retirement saving accounts, like health savings accounts (HSAs) or a taxable brokerage account.

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