Five Key Changes to 401(k)s in 2025

‍In 2022, Congress passed the Secure 2.0 Act that promised to restructure most American's 401(k) plans and change retirement contribution and withdrawal rules to help Americans grow and preserve their retirement nest egg.

In 2025 the rules for 401(k)s will undergo several changes because of the Secure 2.0 Act.

• Higher Contribution Limits - The maximum amount an employee under the age of 50 can contribute to their 401(k) is $23,500 which is up from $23,000 in 2024.
• Higher Catch-Up Contributions for Some Older Employees -Employees who are age 50 or above can make additional catch-up contributions of $7,500 which did not increase from 2024 but as a result of the Secure 2.0 Act, employees age 60, 61, 62, or 63 will be eligible to make catch-up contributions up to $11,250.  For 2025 employees aged 60-63 will be able to put away a maximum of $34,750 ($23,500 + 11,250).  This allows older employees an additional chance to catch-up on retirement savings.
• Automatic 401(k) Enrollment - Because of a provision in the Secure 2.0 Act, starting in 2025, most 401(k) plans established after December 28, 2022, will be required to automatically enroll new employees unless they proactively opt out of the program.  
• Quicker Eligibility for Part-Time Workers - The Secure 2.0 Act has shortened the service requirement for some part-time workers to become eligible to participate in their employer's 401(k) plan.  As of 2025, part-time employees who work at least 500 hours but less than 1000, are eligible for enrollment after two consecutive years of service.  That is one year quicker than the three consecutive years of service required before.
• New 10-Year Rule - This rule affects people who have inherited someone else's 401(k).  Since the passage of the Secure 2.0 Act, non-spouses who inherit a 401(k) after the year 2019 must withdraw money within 10 years.  Beneficiaries and investment advisors interpreted this to mean that they did not have to take out money every year but could delay withdrawals for 10 years from the time of inheritance.  In 2024 , however, the IRS clarified that in addition to following the 10 - year rule, such accounts are now subject to annual RMDs (required minimum distributions) if the person the account was inherited from dies after their required beginning date that they would have had to start taking RMDs.  Beneficiaries  subject to this 10-year rule clarification must begin taking RMDs in 2025 or face penalties.  The IRS is waiving penalties for the years 2021 through 2024.

If you have questions concerning the additional 401(k) catch-up for employees 60-63 as to how you should handle the setup in Vista please visit our website at ConstrucTech Consulting and use Book A Call to meet with one of our consultants.  You can also search through our previous blogs for information on different topics.