It’s axiomatic that businesses can’t discriminate on the basis of age when it comes to hiring, promotion, etc. A federal law—Age Discrimination in Employment Act—bars discrimination for those age 40 and older. But when handling employee benefit plans, age matters, and there are special rules tied to age. Law changes in recent years further complicate age-related tax rules in employee benefit plans.
Here’s a roundup of some age-related provisions to note:
401(k) plans
For 2025, the basic elective deferral by employees is $23,500 (up from $23,000 in 2024). For employees who attain age 50 by December 31, 2025, there are 2 catch-up contribution limits:
- Basic catch-up contribution limit: $7,500 (unchanged from 2024)
- Higher catch-up contribution limit for a company with 25 or fewer employees: $8,250
SIMPLE IRAs
For 2025, the basic elective deferral by employees is $16,500 ($500 more than in 2024). But, depending on age and the size of the employer, there are 3 different catch-up contribution limits:
- Basic catch-up contribution for those age 50 or older by December 31, 2025: $3,500 (the same as in 2024)
- Higher catch-up for employees in a company with 25 or fewer employees and the employer contributes a 4% match (instead of the usual 3% match): $3,850
- Still higher catch-up for those age 60, 61, 62, or 63 by December 31, 2025, without regard to the number of employees in the company or employer contributions: $5,250
Starter 401(k) plans
For 2025, the basic elective deferral contribution by employees is $6,000 (unchanged from 2024). Those who attain age 50 by December 31, 2025, can add an additional $1,000 (also unchanged from 2024).
Group health plans
Employers with 20 or more employees are required to offer current workers and their spouses who are age 65 (or older) the same group health plan benefits that are provided to younger employees. This is so even though those age 65 and older can be covered by Medicare. In this situation, the group health plan is the primary coverage and Medicare is the secondary coverage.
For smaller employers with a group health plan, employees 65 or older use Medicare as their primary coverage. Employees in this situation should enroll in Medicare and not think that employer coverage will be sufficient. Employer coverage only kicks in beyond what Medicare will cover.
Health savings accounts
Employers with high-deductible health plans can choose to make contributions to employees’ health savings accounts (HSAs). The basic contribution limit for 2025 is $4,300 for self-only coverage and $8,550 for family coverage. Of course, contributions must be made on a nondiscriminatory basis.
For employees who will be at least 55 years old by December 31, 2025, there’s an additional $1,000 catch-up amount. But no contribution can be made once an employee is on Medicare.
Employees reaching retirement age
If your company has a defined benefit (pension) plan—a rarity these days—be sure to note the required starting date for commencing pension payouts. Typically, this is age 65.
The fact that employees reach the full age of retirement for purposes of Social Security benefits has no impact on company defined contribution retirement plans, such a profit-sharing and 401(k) plans. Employer contributions must continue as long as employees remain eligible to participate in the plan.
Your company’s qualified retirement plan must make required minimum distributions (RMDs) to employees who attain age 73 by the end of 2025. This is so even though contributions continue to be made as long as they are still working for the company. But RMDs can be avoided if the plan says so, as long as the employees continue to work for the company and do not own more than 5% of the business.
Final thought
“We could certainly slow the aging process down if it had to work its way through Congress.”―Will Rogers
There are other birthdays of note for employee benefit plans, which are listed in an IRS chart. For example, profit-sharing plans can exclude an employee from participation before age 21; SIMPLE-IRAs do not have any minimum age requirement. Discuss your current or proposed employee benefit plans with your CPA or a benefits expert to ensure you know any age-related rules that you need to follow.
Find more blogs about employee retirement plans in this list here.
