SECURE 2.0 Changes Could Affect Retirement Saving in 2025

4 crucial parts of the SECURE 2.0 Act will take effect in 2025, adding to a sweeping list of changes already enacted by the largest overhaul of American retirement laws in over a decade.

Signed in December 2022, the wide-ranging laws impacted rules related to 401(k)s and individual retirement accounts, also generally known as traditional IRAs. Notably, the law has already raised the age when account holders typically must take required minimum distributions from these tax-advantaged accounts from 72 to 73 (and scheduled one other increase to 75 for 2033). Which means when you turned 73 this 12 months, chances are you’ll be coming up on an April 1, 2025, deadline to take your first RMD.

In 2025, other portions of SECURE 2.0 will phase in, allowing staff to avoid wasting more cash in tax-advantaged accounts. Listed here are 4 things to have in your radar that would affect your retirement:

Ads by Money. We could also be compensated when you click this ad.Ad

A ‘super’ twist to 401(k) catch-up contributions

Next 12 months, 401(k) account holders ages 60 to 63 will give you the option to make the most important maximum annual contributions ever — by a major amount — because of the SECURE 2.0 Act’s creation of “super” catch-up contributions.

The most well-liked worker retirement plan within the U.S., 401(k)s allow thousands and thousands of staff to contribute pre-tax dollars to accounts that provide investment options like mutual funds and exchange-traded funds (ETFs). The distributions are taxable, but account holders typically take them in retirement when in a lower tax bracket, subsequently saving money.

The IRS caps how much you may contribute to a 401(k) in a 12 months, limiting the potential tax advantages. In 2025, individuals will likely be subject to an annual contribution limit of $23,500. Employees 50 and older can even make catch-up contributions as much as $7,500 for a complete of $31,000.

But latest in 2025, people ages 60 to 63 will give you the option to make a further contribution — the so-called “super” catch-up — of as much as $3,750. For these folks, the brand new max annual 401(k) contribution ($34,750) is a 14% increase from the 2024 maximum of $30,500.

Along with 401(k)s, these limits also apply to 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan. Eligible participants can put aside as much as $11,250.

Starting in 2025, consequently of a SECURE 2.0 Act change, employees ages 60 to 63 with SIMPLE retirement accounts will give you the option to make additional make-up contributions, as well, as much as a combined limit of $5,250, in response to the IRS.

Recent auto-enrollment rules for 401(k)s

Certain employers will likely be required to auto-enroll qualifying employees in 401(k) plans and 403(b) plans under a latest rule that goes into effect on Jan. 1. The rule only applies to plans that were created after Dec. 28, 2022, and there are some exclusions, like an exemption for employers with 10 or fewer employees.

Employees will still have the choice to opt out or change their deferrals, but enrollment with a contribution rate between 3% and 10% of their salary is alleged to be the default.

The auto-enrollment changes in SECURE 2.0 are aimed toward boosting participation rates in 401(k) plans. Economists have shown that automatic enrollment reliably achieves that goal of accelerating what number of individuals are saving for retirement.

401(k) coverage for part-time staff

The SECURE 2.0 laws added requirements for employers to permit certain part-time employees to take part in their 401(k) plans.

In 2025, part-time staff who’ve worked between 500 and 1,000 hours per 12 months for 2 consecutive years at the identical company will give you the option to enroll — an easing from the present three-year requirement.

What about part-time staff who log over 1,000 hours? They need to allowed to take part in their employer’s 401(k) program after one 12 months. (This rule is not changing in 2025.)

Recovering lost retirement accounts

The SECURE 2.0 Act directed the Department of Labor to create a “Retirement Savings Lost and Found” database by the top of 2024. The web searchable database will help Americans find lost retirement plans and advantages they’re owed in 2025 and beyond. The location is anticipated to launch imminently.

Retirement plans can easily wander away when employees change jobs or when firms merge. In other situations, retirement plans may lose their line of communication with participants or beneficiaries when contact info changes.

The department is requesting data from plan administrators on a voluntary basis to construct out the database. It’s alleged to empower people to get well any lost funds.

Ads by Money. We could also be compensated when you click this ad.Ad