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Retirement accounts, like 401(k)s and IRAs, are powerful tools for building a financially independent future. However, the rules and regulations surrounding these accounts are constantly evolving, and staying informed is critical for maximizing their benefits.
After spending nearly seven years working with one of the largest 401(k) providers in the nation, I’ve witnessed these changes firsthand, and I can confidently say that 2025 is going to be another pivotal year. The Secure Act 2.0, passed at the end of 2022, introduces several updates that could have a significant impact on your retirement savings strategy.
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In this blog post, we’ll explore five major changes coming in 2025 to 401(k) plans and IRAs. Whether you’re actively saving for retirement, a high-income earner, or someone who has recently inherited an IRA, these changes will likely affect you.
Let’s dive in!
If you’re approaching retirement age, catch-up contributions are a fantastic way to accelerate your savings. A catch-up contribution is an additional amount you can contribute to your 401(k) or IRA once you reach age 50. The current catch-up limit is $7,500, allowing you to contribute up to $30,500 annually ($23,000 regular + $7,500 catch-up).
Starting in 2025, however, the rules are changing for those between the ages of 60 and 63. Here’s how the new catch-up limits work:
Additionally, if you have a SIMPLE IRA, the catch-up contribution limit for ages 60-63 will be the greater of $5,000 or 150% of the current year’s catch-up limit.
Why does this matter?
This increase offers a significant boost to those who are just a few years from retirement, giving them the ability to save more and potentially reduce their tax burden (depending on whether contributions are made pre-tax or Roth). If you’re in this age range, 2025 will be the perfect time to take advantage of this higher limit.
Next up is a significant change for high-income earners. If you’re a highly compensated employee (HCE) earning more than $145,000 annually, this change is particularly relevant.
All catch-up contributions for high-income earners must be made to Roth accounts—no more pre-tax contributions for this group. Technically, this started in 2024 but it's worth mentioning anyway, especially if just crossed that $145,000 threshold this year.
Here’s what this means:
Why this change?
The government is shifting towards favoring Roth contributions because they provide tax revenue now rather than later. For high earners, this could impact tax planning strategies, so it’s important to adjust accordingly.
Pro tip: Review your income projections and see how Roth contributions fit into your long-term tax strategy. Roth contributions can be a great way to lock in tax-free growth, especially if you anticipate being in a higher tax bracket later in retirement.
Did you know your employer’s 401(k) match can now be a Roth contribution? Many people are unaware of this relatively new rule, which started in 2023. However, the feature remains optional—your employer has to allow it, so you’ll need to check your plan documents or contact your plan administrator.
Here’s how the Roth employer match works:
Why consider a Roth employer match?
This option allows for tax-free growth on both your contributions and your employer’s match. However, because the match will count as taxable income, it could affect your current-year tax bill. If you’re planning for the long term and don’t mind paying the taxes now, this can be a great strategy to build more tax-free income in retirement.
One of the most exciting changes coming in 2025 is the automatic enrollment provision for new employees. Retirement savings is increasingly the responsibility of the individual, and many people don’t realize how far behind they are until they’re well into their working years. This provision aims to change that by making saving for retirement the default option.
Here’s how the new automatic enrollment works:
Why is this important?
This is great news for employees who might otherwise delay starting their retirement savings. It’s a “set it and forget it” system that ensures employees are contributing without needing to manually enroll. With pensions becoming a thing of the past, automatic enrollment is a much-needed push towards building a more financially secure retirement.
If you’ve recently inherited an IRA, this next change could have a significant impact on how you manage that account.
The rules for inherited IRAs changed in 2020 with the introduction of the 10-Year Rule, and starting in 2025, things will become more stringent. Here’s what you need to know:
Why this change?
The 10-Year Rule limits the time you can benefit from tax-deferred growth in an inherited IRA. If you don’t need the money right away, this can create a planning dilemma—should you take out small amounts each year to avoid a penalty, or let it grow for 10 years and take it all out at once?
The changes coming to retirement accounts in 2025 are a mixed bag—some offer exciting new opportunities, while others could require you to rethink your strategy to avoid penalties. Whether you’re nearing retirement, a high-income earner, or managing an inherited IRA, it’s important to stay informed and proactive.
Here’s a quick recap of the key changes:
As always, when new rules come into play, it’s a great time to revisit your financial plan. If you need help navigating these changes, feel free to reach out for a conversation—I’m here to help you gain clarity and confidence with your retirement planning.
Ready to secure your financial future? Reach out today to discuss how these changes impact your retirement strategy.
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