Employees participating in their company retirement plans (401k and 403b) have new incentives to boost the amounts contributed to those plans coming in 2025 through the Secure Act 2.0 passed in 2022.
Super-sized catch-up contribution for ages 60-63: Plan participants ages 50 and over have been able to defer up to $7,500 in addition to the salary deferrals available to all plan participants. Starting in 2025, participants between 60 and 63 can boost their catch-up contribution by up to 50% (maximum of $11,250). The following will be the annual limits for 401k/403b salary deferrals:
Automatic 401k/403b enrollment: All employees, new or not participating in their employer’s retirement plan, will be automatically enrolled in the plan. Initial salary deferrals will start at 3% of employees’ pay and will increase by 1% of pay every year until the deferral is 10% of pay. Participants can opt out of the deferral or limit the percentage withheld to a level of their choice, but the goal is to boost retirement savings for all employees.
Another element of the Secure Act 2.0 is raising the age IRA Required Minimum Distributions (RMDs) must begin. The current age IRA owners must begin to withdraw funds (and pay taxes) is 73. The age is increasing to 75, beginning in 2033. An IRA-owner turning 67 in 2025 will have the option to wait eight years before withdrawing the RMD from their IRA, allowing the account to grow in the meantime. Many IRAs are funded by a rollover from a 401k/403b plan.
Woodley Farra Manion does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.