Four important parts of the SECURITY 2.0 Act will go into effect in 2025, adding to a vast list of changes already enacted by the largest overhaul of US retirement laws in more than a decade.
Signed in December 2022, the comprehensive The law affected rules related to 401(k)s and individual retirement accounts, also known as traditional IRAs. In particular, the law has already increased the age when account holders must generally take Required minimum distribution 72 to 73 from these tax-advantaged accounts (and another increase to 75 is scheduled for 2033). This means that if you turned 73 this year, you are due on April 1, 2025. deadline To take your first RMD.
In 2025, other parts of Secure 2.0 will be phased in, allowing employees to save more money in tax-advantaged accounts. Here are four things to be on your radar that could affect your retirement:
A ‘super’ twist for 401(k) catch-up contributions
Next year, 401(k) account holders ages 60 to 63 will be able to make the largest annual maximum contribution ever — by a significant amount — thanks to the creation of the SECURITY 2.0 Act. “Super” catch-up contribution.
The most popular employee retirement plan in the US, 401(k)s allow millions of workers to contribute pre-tax dollars to accounts that offer investment options such as mutual funds and exchange-traded funds (ETFs). are Distributions are taxable, but account holders typically take them in retirement when in a lower tax bracket, therefore saving money.
The IRS limits how much you can contribute to a 401(k) in a year, limiting the potential tax benefits. In 2025, individuals will be subject to an annual contribution limit of $23,500. Employees age 50 and older can also make catch-up contributions of up to $7,500 for a total of $31,000.
But new in 2025, people aged 60 to 63 will be able to make an extra contribution – the so-called “super” catch-up – of up to $3,750. For these people, the new maximum annual 401(k) contribution ($34,750) is a 14% increase from the 2024 maximum of $30,500.
In addition to 401(k)s, these limits also apply to 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan. Eligible participants can set aside a maximum of $11,250.
Starting in 2025, as a result of the transition to a SAFE 2.0 Act, workers ages 60 to 63 with ordinary retirement accounts will be able to make additional make-up contributions, up to a combined limit of $5,250. IRS.
New self-enrollment rules for 401(k)s
Some employers will be required to self-enroll eligible employees in 401(k) plans and 403(b) plans under a new rule that takes effect Jan. 1. This rule applies only to plans that were created after December 28. 2022, and there are some exemptions, such as an exemption for employers with 10 or fewer employees.
Workers will still have the option to opt out or change their deferrals, but enrollment defaults with a contribution rate between 3% and 10% of their salary.
The self-enrollment changes in SECURE 2.0 are intended to increase participation rates in 401(k) plans. Economist have shown that automatic enrollment reliably achieves the goal of increasing how many people are saving for retirement.
401(k) coverage for part-time workers
The SECURE 2.0 Act added requirements for employers to allow certain part-time employees to participate in their 401(k) plans.
In 2025, part-time workers who have worked between 500 and 1,000 hours per year for two consecutive years at the same company will be eligible to enlist — an easing from the current three-year requirement.
What about part-time workers who log more than 1,000 hours? They must be allowed to participate in their employer’s 401(k) program after one year. (This rule is not changing in 2025.)
Recovering lost retirement accounts
The SECURE 2.0 Act directs the Labor Department to create a “retirement savings lost and found” database by the end of 2024. The online searchable database will help Americans find lost retirement plans and benefits in 2025 and beyond. The site is expected to launch soon.
Retirement plans can easily end when employees change jobs or when companies merge. In other situations, retirement plans may lose their lines of communication with participants or beneficiaries when contact information changes.
The department is Data request From scheme managers on a voluntary basis to build the database. It empowers people to recover any lost funds.
More than money:
Saving for retirement is getting easier in 2024 thanks to the SECURE 2.0 Act
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