5 Key Changes To 401(k)s In 2025 And What They Mean For You

Participating successful a 401(k) plan wherever you activity is simply a smart measurement to put for retirement. Plus, your employer whitethorn lucifer immoderate aliases each of nan money you contribute. In 2025 nan rules for 401(k)s will acquisition respective important changes arsenic a consequence of nan national SECURE 2.0 Act of 2022.

Here's nan lowdown connected 5 large changes to 401(k) plans successful 2025 and really you tin return afloat advantage of them.

1. Higher Contribution Limits

The maximum magnitude that workers tin lend to their 401(k) plans tends to emergence each year, arsenic it's adjusted for inflation. (For 2025, however, nan publication limit for IRAs didn't increase. It's still $7,000, aliases $8,000 if you're 50 aliases older.) For 2025, nan astir you tin lend to a 401(k) if you're nether 50 is $23,500. That's up from $23,000 successful 2024.  

Workers must gain astatine slightest that overmuch to lend that overmuch money, because contributions each twelvemonth are constricted to 100% of worker compensation.

Workers tin person some a accepted 401(k) relationship and a designated Roth 401(k) relationship if their employer offers a Roth option. However, nan limit applies to some accounts combined.

2. Higher Catch-Up Contributions for Some Older Workers

Workers property 50 and older tin make further catch-up contributions. For some 2024 and 2025, nan maximum catch-up publication is $7,500 for astir workers property 50 and older. In different words, a worker who is property 50 aliases older who earns astatine slightest $31,000 successful 2025 is eligible to lend that overmuch to their 401(k) scheme ($23,500 + $7,500).

In addition, arsenic a consequence of nan SECURE 2.0 Act, workers property 60, 61, 62, and 63 will now beryllium eligible to make catch-up contributions of up to $11,250. For 2025, that would mean a maximum of $34,750 ($23,500 + $11,250). Again, they must gain astatine slightest that overmuch to lend that much.

3. Automatic 401(k) Enrollment

Since 1998, nan authorities has allowed employers to automatically enroll caller labor successful their 401(k) plans. Workers who didn't want to participate could opt-out by taking nary action to enroll.

Because of a proviso successful nan SECURE 2.0 Act, starting successful 2025, astir 401(k) plans established aft December 28, 2022, will beryllium required to automatically enroll caller labor unless they proactively opt retired of nan program.

If you don't return steps to opt-out, nan publication percent must beryllium astatine slightest 3% of your net but not much than 10% successful nan first year. After that, it must summation by 1 percent constituent per twelvemonth until it gets to astatine slightest 10% but not much than 15%. If you were an existing employee, you are legacied successful astatine your existent publication levels.

There are various exceptions, including 1 for companies that person been successful business for little than 3 years aliases person 10 aliases less employees.

As a consequence of nan law, anyone who originates activity pinch an employer that doesn't suffice for an objection whitethorn find themselves contributing to a 401(k) starting successful 2025.

4. Quicker Eligibility for Part-Time Workers

The SECURE 2.0 Act besides shortened nan work request for immoderate part-time workers to go eligible to participate successful their employer's 401(k) plan.

The norm applies to part-time labor who activity astatine slightest 500 (but little than 1000) hours for an employer successful a fixed year. As of 2025, they are eligible for enrollment aft 2 consecutive years of service, alternatively than 3 years (as it was earlier nan norm changed). The norm for part-time labor who activity 1000 aliases much hours per twelvemonth is nan same: they are eligible for enrollment aft 1 year.

5. New 10-Year Rule

Another alteration for 2025 will impact galore group who inherit personification else's 401(k).

Since nan transition of nan SECURE Act, non-spouses who inherit a 401(k) aft 2019 typically must retreat nan money wrong 10 years (the 10-year rule). This was antecedently interpreted to mean that nan beneficiary didn't person to return money retired each twelvemonth but could hold withdrawals until nan extremity of nan 10 years if they wanted to. In that way, they could postpone nan taxation deed and bask tax-sheltered maturation for each that time.

In 2024, however, nan Internal Revenue Service (IRS) clarified that, successful summation to pursuing nan 10-year rule, specified accounts are now taxable to yearly required minimum distributions (RMDs) if nan personification dies aft their required opening date—that is, nan day connected which they would person had to commencement taking RMDs. Under nan clarified rules, nan beneficiary must return RMDs based connected their life expectancy.

Beneficiaries taxable to this recently clarified norm must statesman taking RMDs successful 2025 aliases look penalties. Fortunately, nan IRS is waiving penalties for nan years 2021 done 2024.

The Bottom Line

The rules for 401(k) plans tin alteration each year, truthful if you want to get nan astir from your plan, it's a bully thought to reappraisal it periodically. The twelvemonth 2025, successful particular, is bringing immoderate important changes to maximum contributions, catch-up contributions, and inherited status accounts, among others. If you person immoderate questions astir what to do this year, consulting a financial planner aliases different knowledgeable advisor could beryllium worthy nan investment.