The 2025 limits are now the ones that count

The 2025 dollar limits are no longer a preview. For limitation years that begin on January 1, 2025, they are the limits that count. Payroll services should have switched tables. Owner compensation policies for the new year should be written against the new compensation cap. A cash balance accrual that belongs to 2025 will be measured against the new defined benefit limit. None of that rewrites 2024. A contribution still being considered for the 2024 plan year stays on the 2024 column, even though the deposit itself may leave the bank in 2025.

Sterling Pension Group LLC in West Hartford administers plans and coordinates independent Enrolled Actuaries. We are not an actuarial firm. This briefing is education for a self-employed owner, physician, dentist, attorney, or consultant. It is not tax, legal, or actuarial advice. The IRS announcement that set these figures is IR-2024-285. The ongoing table is the COLA page. How to read the notice when it was merely public, and not yet in force, is /insights/reading-2025-limits.

The column that is now live

Employee deferrals in 2025 are limited to $23,500. The age-50 catch-up remains $7,500. A participant who attains age 60, 61, 62, or 63 in 2025 may instead use a catch-up of $11,250, if the plan's terms allow the tier to operate. That higher catch-up is not added on top of the $7,500. It replaces it for those ages. It is still a 401(k) deferral. It is not a cash balance limit. The longer explanation is /insights/super-catch-up.

The defined contribution annual additions limit is $70,000. Catch-up deferrals generally sit outside that additions limit. They do not increase it by either $7,500 or $11,250 in some informal combined "owner maximum" you will not find in the notice. The compensation cap is $350,000. Pay above that cap is left out of many plan calculations for 2025. The defined benefit annual benefit limit is $280,000. The IRA dollar limit remains $7,000. An IRA is not part of the employer's plan and did not receive an increase in this cycle.

Set the old column beside it so habit does not win. In 2024 the deferral was $23,000, the catch-up $7,500, additions $69,000, compensation $345,000, the defined benefit limit $275,000, and the IRA $7,000. There was no $11,250 tier. If a payroll file, a board consent, or an illustration still carries the 2024 benefit limit into a 2025 accrual, it is stale. If it carries the 2025 benefit limit back into a 2024 accrual, it is wrong in the other direction.

The IRS describes what the benefit limit is, and what it is not, on the page for defined benefit plan benefit limits. It is a ceiling on an annual benefit. It is not a contribution. A cash balance pay credit remains actuarial. Any owner dollar amount you are shown is illustrative until the enrolled actuary values the formula, the census, the assets, and the interest crediting rate under the limit that applies to that plan year. A $5,000 increase in the benefit ceiling, from $275,000 to $280,000, does not increase your deposit by $5,000. Anyone who updates an illustration with that shortcut is inventing a contribution.

What payroll should be doing this week

The first 2025 paycheck is the operational test. The deferral cap on that check, projected for the year, should be $23,500, not $23,000. Participants age 50 or older, and not in the 60-through-63 window, should show a catch-up capacity of $7,500. Participants who attain 60, 61, 62, or 63 this year should show $11,250, and only if the document permits it. A document that has not been reviewed since 2023 may be silent on a tier that did not exist when it was drafted. Silence is not a reason to withhold the higher amount and hope. Ask the administrator, in writing, whether an amendment is required before the higher tier runs.

Do not "make up" a missed 2024 deferral by over-withholding in January. The years do not pool. A participant who deferred $23,000 in 2024 starts 2025 at zero toward $23,500. A participant who deferred less than $23,000 in 2024 also starts at zero. The unused room expired. The SECURE Act's rule that a new plan may generally be adopted by the filing deadline, including extensions, does not restore elective deferrals from compensation that was already paid. If 2024 payroll is finished, 2024 deferrals are finished.

Roth catch-up is still delayed. Notice 2023-62 put the SECURE 2.0 mandate off through 2025. It is not in force now. It does not spring to life because the calendar turned to 2025. It is scheduled to become an operational requirement beginning January 1, 2026, for participants whose prior-year FICA wages exceeded $150,000. When that day comes, the change will be inside the paired 401(k), not inside the cash balance formula. For this January, do not require Roth treatment of catch-ups. A participant who affirmatively elects Roth, in a plan that offers Roth, is making a choice. Choice is not the mandate. Correct a payroll provider that flipped the switch because "SECURE 2.0 is effective."

What the actuary should be using, year by year

Ask for the plan year before you ask for the number. A valuation of the 2024 accrual uses the $275,000 benefit limit and the $345,000 compensation cap. A valuation of the 2025 accrual uses $280,000 and $350,000. The same human being can be in both conversations in the same month. The files should not share a limit.

Minimum funding does not update itself for the COLA either. For a calendar-year defined benefit plan, the minimum contribution for a year is generally due 8.5 months after that year ends. For the 2024 year, that is September 15, 2025. For the 2025 year, it will be September 15, 2026. Missing a minimum can mean a 10% excise tax on Form 5330. The fact that 2025 limits are now in force does not pull the 2024 minimum forward, and it does not let you satisfy the 2024 minimum with a deposit computed under the 2025 benefit limit.

Deductibility stays on its own track. IRC 404(a)(6) often permits a contribution paid by the due date of the return, including extensions, to be deducted on that return. Your CPA names the date for your entity. Do not equate it with September 15. A January deposit can be a 2024 deduction, a 2025 deduction, or a poorly documented mixture. The designation follows the plan year, the valuation, and the return, not the month the bank cleared the wire. If you are looking at a 2024 deposit in this first week of January, read /insights/do-not-rush-funding again and refuse any number that is merely illustrative.

The spring conversation about last year's contribution will be /insights/spring-funding-2024. You do not need to wait until spring to stop using the wrong column. You do need to wait for the actuary before you use any column as a wire amount.

Compensation, owners, and the new cap

Owners who set their own pay should look at $350,000 as the 2025 cap, not as a required salary. Paying yourself the cap does not create a cash balance credit equal to the cap. It only means the plan may count compensation up to that figure if the formula uses pay. Paying yourself $345,000 because that was last year's cap leaves $5,000 of countable room unused if you intended to sit on the cap and if the rest of the design actually needs the extra pay. Paying yourself above $350,000 for business reasons may be perfectly sensible and still will not increase the compensation the plan counts.

S corporation owners are looking at W-2 wages. Sole proprietors and partners are looking at earned income, which your CPA computes and which is not the same as cash in the draw account. Tell the actuary which kind of compensation it is. An illustrative credit built on the wrong kind of pay is not a small error. It is a different plan.

If staff are paid near levels that matter for testing, the new cap applies to them as well when their pay would otherwise exceed it. Most staff are nowhere near $350,000. Highly paid associates sometimes are. The census still decides the design. A new federal table does not retire /insights/census-first, the staff cost analysis, or the question of whether a pension is not a fit.

Filings that become timely to think about, not to rush

A calendar-year Form 5500 for the 2024 year will generally be due July 31, 2025, extendable to October 15, 2025 with Form 5558, and filed on EFAST2. As of January 1, 2025, Form 5558 can be e-filed. That is an administrative convenience. It is not a reason to file the 2024 Form 5500 in the first week of January, before the year-end census, the assets, and the Schedule SB are real. The IRS map is the Form 5500 corner. The Department of Labor's page is Form 5500 reporting and filing.

PBGC coverage is unchanged by a COLA release. It remains plan-specific. Many small professional-service employers are exempt. It is not true that every small plan is exempt. If your 2025 census will add employees, ask counsel to look again rather than relying on a conclusion drawn when you were solo. The agency's starting point is PBGC coverage. Premiums, if any are due, follow coverage. They do not follow the deferral limit.

Publication 560 is the small-business booklet. Where a printed edition still shows 2024 dollars, the notice controls for 2025. You can brief a CPA from the notice this week without waiting for a revised booklet.

How a paired plan uses the new year

Most owner arrangements that survive contact with a census are a 401(k) plus a cash balance plan, for the reasons in /insights/combo-plan and on the combo page. In 2025 the 401(k) side can accept a $23,500 deferral and the applicable catch-up. The cash balance side can be valued under a $280,000 benefit limit. The defined contribution additions limit of $70,000 constrains the 401(k) side's annual additions, not the pension credit. Deduction coordination between the two plans is still your CPA's work, with the actuary's range in hand. The new limits do not repeal that coordination, and they do not authorize adding $70,000 to $280,000 and calling the sum a maximum deposit.

The limits page is where the published figures should stay. The illustrations and the calculator remain illustrative. The fees for administration and actuarial work are part of whether the larger 2025 room is worth using. The plan lifecycle is what you owe the plan after the limits have been applied correctly once.

If you are choosing between a traditional formula and a cash balance formula for a 2025 accrual, the limits are the same family of limits. The choice is the shape of the promise, discussed in /insights/db-versus-cash-balance. The new benefit limit does not make one formula newly legal and the other newly suspect.

What to do in the next two weeks

Turn the table on, and keep last year in its own file.

• Confirm with payroll, in writing, that 2025 checks use a $23,500 deferral, a $7,500 catch-up at age 50, and an $11,250 catch-up only for participants who attain ages 60 through 63 and only if the document allows it.
• Ask the enrolled actuary to label any open illustration with the plan year and the benefit limit used. Require $275,000 on 2024 work and $280,000 on 2025 work. Reject an illustrative credit that cites neither.
• Tell your CPA which deposit, if any, is intended for the 2024 return, and ask for the deduction date under IRC 404(a)(6) separately from the September 15, 2025 minimum-funding date.
• Leave Roth catch-up off. It is delayed through 2025. Do not implement a 2026 operational rule in a January 2025 payroll.
• If you set owner pay this month, measure it against the $350,000 cap for 2025 plan purposes, and do not confuse the cap with a contribution.

When payroll and the actuary are using the same year, contact Sterling Pension Group to coordinate the document, the census, and the valuation calendar. Bring both columns. Use only one of them per plan year.