Big shifts are on the horizon for retirement accounts in 2025, thanks to updates introduced by the SECURE 2.0 Act.
From increased contribution limits for older workers to stricter rules for inherited IRAs, these changes could reshape retirement planning and tax strategies for years to come.
Whether you’re a saver preparing for retirement or a beneficiary of an IRA, here’s how these updates could impact your financial future and what steps to take to stay ahead.
Catch-Up Contributions
Starting in 2025, individuals aged 60 to 63 will see higher catch-up contribution limits for 401(k) and SIMPLE IRA plans.
Workers in this age group can contribute the greater of $10,000 or 150% of the standard catch-up limit to their 401(k).
For SIMPLE IRAs, the catch-up limit increases to the greater of $5,000 or 150% of the standard limit.
This is a golden opportunity for late-career professionals to bolster their retirement savings, especially if they’ve fallen behind on contributions.
For example, someone nearing retirement can add significantly more to their retirement account in their final working years, taking advantage of tax-deferred growth or Roth contributions.
Key Takeaway:
If you’re in this age bracket, ramp up your savings now to maximize this increased limit in 2025.
Roth-Only Catch-Up Contributions for High Earners
High earners making over $145,000 will be required to make catch-up contributions exclusively to Roth accounts starting in 2025.
Unlike traditional contributions, Roth contributions are made with post-tax income but grow tax-free and allow for tax-free withdrawals in retirement.
While this change may increase immediate tax liabilities for some, it could benefit those who expect to be in higher tax brackets during retirement.
It’s a strategic shift designed to boost current tax revenues while offering long-term retirement perks.
Key Takeaway:
Review your tax strategy to determine whether Roth contributions align with your financial goals. This may also be a good time to consult a tax advisor.
Automatic Enrollment in 401(k) Plans
To encourage passive savings, new 401(k) plans launched after December 2022 must auto-enroll employees starting in 2025.
Employees will be enrolled with an initial deferral rate of 3% to 10%, which will increase by 1% annually up to a cap of 15%.
This automatic enrollment takes the guesswork out of saving, ensuring that more workers are consistently contributing to their retirement.
While employees can opt-out, the structure promotes financial security for those who might otherwise neglect to save.
Key Takeaway:
If you’re starting a new job in 2025 or later, keep an eye on your paycheck deductions and consider staying enrolled to build a solid retirement fund.
New Rules for Inherited IRAs
One of the most impactful changes is the enforcement of the 10-year rule for inherited IRAs. Starting in 2025, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within ten years.
What’s more, beneficiaries will also face required minimum distributions (RMDs) each year, and failure to comply will result in penalties of up to 25%.
This is a significant departure from the previous “stretch IRA” option, which allowed beneficiaries to take smaller distributions over their lifetimes.
While certain beneficiaries, such as surviving spouses and disabled individuals, are exempt from these rules, most will need to rethink their withdrawal strategies to avoid hefty penalties and large taxable withdrawals.
Key Takeaway:
Plan ahead by scheduling distributions over the ten years to spread out the tax burden and avoid penalties.
Roth Employer Matches
Employers will soon have the option to provide Roth matches in 401(k) plans. These matches, though taxable in the year they are contributed, grow tax-free and can be withdrawn tax-free in retirement.
This change offers flexibility for employees who prefer Roth accounts but still want to benefit from employer contributions.
However, it’s essential to understand the immediate tax implications of Roth employer matches.
Key Takeaway:
If your employer offers Roth matches, consider whether the long-term tax-free growth outweighs the short-term tax hit.
The 2025 updates to IRA and 401(k) rules aim to expand retirement savings options while enforcing stricter rules for inherited accounts.
Whether you’re looking to save more, adjust your tax strategy, or manage an inherited IRA, proactive planning will be essential.
Consult a financial advisor to ensure you’re taking full advantage of these changes while protecting your retirement goals.
