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Changes to Retirement Plan Contributions for 2025 Thumbnail

Changes to Retirement Plan Contributions for 2025

The SECURE Act 2.0

(Setting Every Community Up for Retirement Enhancement Act), signed into law in late 2022, brings significant changes to retirement planning. Many provisions are set to go into effect in 2025 and beyond. Here are the key changes:

  1. Automatic Enrollment in Retirement Plans (Effective 2025): Beginning in 2025, most new 401(k) and 403(b) plans will be required to automatically enroll employees at a contribution rate of at least 3%, gradually increasing by 1% each year up to a minimum of 10%, unless employees opt out. This aims to boost retirement savings for workers who might not enroll on their own.
  2. Student Loan Matching Contributions (Effective 2024): Employers will be allowed to "match" employee contributions to a 401(k), 403(b), or SIMPLE IRA based on an employee's qualified student loan repayments. This provision starts in 2024 but will have growing impacts in the years that follow, helping employees who are paying off student loans to build retirement savings.  For more information, see IRS: Here's How to Get a 401(k) Match for Your Student Loan Payment. 
  3. New "SAVERs Match" (Effective 2027): The nonrefundable "Saver’s Credit," which provides tax credits to low- and moderate-income individuals who contribute to retirement accounts, will be replaced by a direct government match starting in 2027. The match will be up to 50% of contributions, up to $2,000 per person, and directly deposited into the taxpayer’s retirement plan.
  4. Higher Catch-Up Contributions (Effective 2025): Starting in 2025, individuals aged 60 to 63 will be allowed to make "catch-up" contributions of up to $10,000 annually to 401(k) and similar employer-sponsored plans. For SIMPLE IRAs, the catch-up limit will increase to $5,000. These amounts will be indexed for inflation.
  5. Emergency Savings Accounts Linked to Retirement Plans (Effective 2024): Beginning in 2024, employers will be able to offer linked emergency savings accounts within retirement plans. Employees can contribute up to $2,500 to these accounts, which will be accessible for emergencies without the penalties associated with retirement plan withdrawals.
  6. Expansion of Roth-Style Contributions: The SECURE Act 2.0 expands options for Roth contributions across various plans. Starting in 2024, employer matching contributions can be made as Roth contributions (if the employee chooses). This change gives workers more flexibility in managing tax advantages and retirement income planning.
  7. Changes to Required Minimum Distributions (RMDs): The age for required minimum distributions (RMDs) increased to 73 starting in 2023, and will rise again to 75 starting in 2033. Additionally, starting in 2024, Roth accounts in employer retirement plans will no longer be subject to RMDs, aligning with the treatment of Roth IRAs.
  8. 529 Plan Rollovers to Roth IRAs (Effective 2024): Starting in 2024, individuals with leftover funds in 529 education savings plans can roll over up to $35,000 of those funds into a Roth IRA for the plan beneficiary. This rollover is subject to annual contribution limits and requires the 529 account to have been open for at least 15 years. The allowable amount to be rolled over is from contributions made more than 5 years prior.
  9. Small Business Retirement Plan Incentives: Beginning in 2025, small businesses will receive enhanced tax credits for starting and maintaining retirement plans, further encouraging the growth of retirement savings for small business employees.
  10. Improvements to SIMPLE and SEP IRAs: Starting in 2024, employers with SIMPLE IRAs can make additional contributions, and there will be more flexibility for matching contributions. Also, SEP IRAs will allow Roth contributions, providing more retirement savings flexibility.
  11. Penalty-Free Withdrawals for Certain Emergencies (Effective 2024): Starting in 2024, the SECURE Act 2.0 allows penalty-free withdrawals from retirement accounts for certain emergency expenses, such as natural disasters, domestic abuse, or terminal illness. These withdrawals are generally capped, and some may allow for repayment over time.
  12. Flexible Withdrawals for Long-Term Care Premiums: Starting in 2026, individuals will be able to withdraw up to $2,500 per year from their retirement accounts without penalty to pay for long-term care insurance premiums.
  13. Retirement savings “lost and found.” Have you ever lost track of your 401(k)? Well, the SECURE 2.0 Act enables the creation of a searchable database to help people find retirement benefits that they lost track of. The retirement savings “lost and found” will be housed at the Department of Labor and be created within the next two years.  Data show that millions of 401(k) accounts are regularly forgotten, amounting to nearly a trillion dollars in unclaimed retirement benefits.

These changes under SECURE Act 2.0 aim to increase retirement savings, offer more flexibility, and help address financial challenges like student loans and emergencies. They provide new opportunities for individuals to grow their retirement nest egg while navigating other financial responsibilities.  Please feel free to reach out to us if you have any questions on these new provisions and how they will impact you or your family.