Three significant 401(k) plan changes coming in 2025 are worth paying attention to, regardless of when you plan to retire, whether you work full-time or part-time, or whether you even have a 401(k) yet.
In late 2022, Congress passed a law to help savers build their retirement nest eggs via more accessible retirement plan enrollment, higher catch-up contribution limits and much more. The SECURE 2.0 Act, which builds on the original 2019 SECURE — Setting Every Community Up for Retirement Enhancement– Act, has more than 90 retirement-related rule changes and provisions for all types of retirement plans.
SECURE 2.0 changes began rolling out in 2023 and will continue through 2027. Find out how the 401(k) changes coming in 2025 can make putting more money away for retirement easier.
2025 SECURE 2.0 Act 401(k) Plan Changes
The following changes also apply to 403(b) plans. Take a look.
1. Automatic Enrollment for New 401(k) Plans
If you enrolled in your company’s 401(k) plan before SECURE 2.0, you probably had to contact the human resources office or go onto your company’s website to enroll once you became eligible.
Starting in 2025, all new 401(k) plans — those established after Dec. 29, 2022 — must automatically enroll eligible employees unless they opt out. If you work for a company with fewer than 10 employees or a business under three years old, your employer is exempt from the automatic enrollment requirement. Government and church plans are also exempt.
Your employer can set the initial contribution rate from 3% to 10% of your salary, or you may select your rate. According to Vestwell, 6% is employers’ most common set contribution rate. Your contribution rate will automatically increase by 1% annually until it reaches the maximum set by your employer unless you choose otherwise. An employer may set its maximum contribution rate at 10% to 15%.
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2. Quicker Eligibility for Part-Time Workers
Currently, you must work 1,000 hours in a year or 500 hours over three consecutive years to qualify for an employer’s 401(k) plan.
Next year, the three years will be reduced to two, making it quicker for part-time workers to become eligible. This change could benefit you if you have multiple part-time jobs rather than one full-time job.
Keep in mind that if you work two jobs and enroll and contribute to two 401(k) plans, you must keep your total annual contributions to no more than the yearly limit. For instance, in 2024, the 401(k) contribution limit is $23,000. So, if you contribute $15,000 to Plan A, you can only contribute $8,000 to Plan B.
3. Higher Catch-Up Contributions for Older Workers
A recent AARP survey revealed that of adults 50 and over, 61% fear they won’t have enough savings to last through retirement, and 20% have yet to start saving for retirement. If you worry you’ve fallen behind on saving, SECURE 2.0 improves your ability to catch up.
The 2024 401(k) catch-up contribution limit is $7,500 for those 50 and older. Starting in 2025, if you’re 60 to 63, you will get a higher contribution limit than people in their 50s. Your catch-up contribution limit will increase to the greater of $10,000 or 50% more than the regular catch-up limit. Suppose the 2024 contribution limit remains at $7,500 for 2025; you can “catch up” up to $11,250 in 2025.
The increased limit will be adjusted for inflation after 2025, ensuring it keeps pace with rising costs.
SECURE 2.0 Act Changes Aren’t Limited to 401(k) Plans
SECURE 2.0 impacts all types of retirement plans, and changes aren’t limited to contributions. Several withdrawal rule changes are included, too.
If you have any type of retirement plan, it’s worth learning more about these changes. The more you know how your plans work, the easier it is to maximize your savings efforts.
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