The IRS has issued its final regulations, bringing substantial updates to 401(k), IRA Required Minimum Distribution (RMD) rules, and Roth IRA limits for 2025. These rules could reshape how Americans plan for Retirement, creating new opportunities to enhance retirement savings, improve employer contributions, and reward personal investments in retirement accounts.

It’s time to take a close look at your retirement plans to ensure you’re maximizing your benefits. 

In December 2022, Congress signed the Secure 2.0 Act to help citizens build their retirement savings. This bipartisan initiative provides more accessible retirement plan enrollment, higher catch-up contribution limits, and more. These new reforms can impact long-term financial health regardless of age. 

Here are some of the critical changes you need to be aware of for your retirement planning, regardless of age.

2025 SECURE 2.0 Act 401(k) Plan Changes

1. Automatic 401(k) Enrollment

Starting in 2025, the SECURE 2.0 Act mandates that new 401(k) plans be created after an automatic enrollment feature is implemented unless specific exceptions apply. This measure is designed to increase participation in retirement savings plans. 

With automatic enrollment, employees can be easily added to their company’s 401(k) plan, beginning with a contribution of 3% to 10% of their salary. Each year, this amount increases by 1%, reaching a minimum of 10% and a maximum of 15%.

2. Higher Catch-Up Contributions for Older SIMPLE IRA 

A recent AARP survey reveals that 61% of adults over 50 fear they might not have enough savings for retirement, and 20% haven’t started saving yet. For those who feel behind, the SECURE 2.0 Act offers a timely solution, making it easier to close the retirement savings gap. 

The Act introduces an expanded 401(k) 2025 catch-up contribution limit by IRS for older workers, creating more ways to boost retirement funds quickly. In 2024, individuals aged 50 and older can contribute an additional $7,500 to their 401(k) accounts. But starting in 2025, those between 60 and 63 can raise the maximum 401(k) annual catch-up contribution to $10,00 or 150% of the catch-up limit, whichever is the two is greater. 

“This can be a great opportunity for people to enhance their retirement plan,” said certified financial planner Elliot Kallen, senior advisor at Prosperity Financial Group. 

Below is an overview of the upcoming retirement plan contribution limits, designed to help individuals make the most of their retirement savings. These limits are set to adjust with inflation after 2025, ensuring they stay in line with rising costs.

3. Roth catch-up Contribution

Under the 2025 SECURE 2.0 Act, high earners, those making over $145,000 annually from a single employer, will see a shift in catch-up contributions rules in 2025 Roth IRA contribution limits in 401(k), 403(b) or 457(b). 

Starting in 2026, these contributions can only be made to after-tax Roth accounts, eliminating the upfront tax break previously available. Adjusted for inflation, this ensures ongoing relevance as costs rise. 

However, the IRS has postponed this Roth IRA contribution limit until January 2026, allowing all workers to continue making pretax catch-up contributions through 2025. This delay provides a valuable opportunity to maximize tax benefits before the new regulations take effect.

4. New 10-year rule for inherited IRAs

In general, the new rules are fairly simple for most beneficiaries. If you inherited an IRA from a descendant passing on or after January 1, 2020, funds must now be withdrawn by December 31 of the tenth year after the original owner’s death. 

This rule eliminated the ‘stretch IRA’ strategy that allowed IRAs beneficiaries to pass along the assets in the account from one generation to the next, taking advantage of tax-deferred Growth of the assets by using a long distribution period. 

However, exceptions allow certain beneficiaries to continue taking withdrawals over their lifetimes:

• Spouses
• Minon children under 21
• A beneficiary who is not more than 10 years younger than the decedent
• individuals with disabilities or chronic illness

Surviving spouses can also roll inherited funds into their own IRA, deferring required minimum distributions (RMDs) until reaching their RMD age.

5. Inherited IRA RMD Penalties

Beneficiaries who missed RMDs from their inherited IRAs between 2021 and 2024 can breathe a sigh of relief as transitional relief has been granted. However, starting in 2025, a 25% penalty will apply for those who do not adhere to the RMD requirements. 

SECURE 2.0 Act Changes Aren’t Limited to 401(k) Plans

The changes in SECURE 2.0 affect all types of retirement plans. It includes changes to both contributions and withdrawal rules.

At Prosperity Financial Group, we believe that knowledge is power. Understanding these changes will enable you to navigate your retirement options effectively and maximize your savings potential. Don’t leave your financial future to chance—empower yourself with the right information.

Visit Prosperity Financial Group today to learn more about SECURE 2.0 and how our expert advisors can help you adapt to these changes. Together, we can build a solid plan for your retirement success!

The post Must Know Changes Coming to IRAs and 401(k)s in 2025 appeared first on Prosperity Financial Group | San Ramon, CA.

Elliot Kallen Wealth Manager | Registered Principal

For more than three decades, Elliot has provided customized wealth management solutions for entrepreneurs, business owners, retirees, and millennials.

Elliot and his wife, Tammy, are passionate about giving back to the community through their 501(c)(3) foundation, A Brighter Day. Through his partnership with A Brighter Day Charity, the Kallen family has helped local teens and young adults recognize and access resources to cope with the risks of stress and depression.

He enjoys spending his free time with his family. Some of his hobbies include cooking, wine, golf, travel, and studying history.

He lives in Lafayette, California with his wife, step-daughter, and grandson.