by | Nov 29, 2024 | Personal Finance | 0 comments

Although it was passed back in 2022, SECURE ACT 2.0 will create some big changes for retirement plans in 2025. Pretty much all of these changes are positive, but they could take a little legwork on your part to take advantage of them, so here’s what you need to know! 

 

1. Super Catch-Up Contributions Mean Higher Limits 

If you are age 60 – 63 in 2025, guess what! You can benefit from a new (and somewhat odd) rule created by SECURE ACT 2.0 called “Super Catch-Up Contributions.”  

Starting in 2025, active participants in 401(k) and 403(b) plans will be allowed an additional catch-up contribution that is 150% of the standard catch-up limit.  

What does this mean for you? Find your age bracket below!   

Total Contribution Amounts 

  • Participants under age 50 can contribute up to $23,500 (new standard limit for 2025) 
  • Participants aged 50 – 59 can contribute up to $31,000 ($23,500 + $7,500 catch-up) 
  • Participants aged 60-63 can contribute up to $34,750 ($23,500 + $11,250 super catch-up) 
  • Participants aged 64 and beyond revert to the age 50 catch-up: up to $31,000 ($23,500 + $7,500 catch-up). https://www.milliman.com/en/insight/client-action-bulletin-secure-2-changes-in-2025 

Important Notes 

  • This super catch-up provision is optional for plans to adopt – so check with your employer if your plan allows this.  
  • The amounts listed above apply to 401(k), 403(b), TSP, and most 457 plans. For SIMPLE IRA plans, the super catch-up contribution amount will be $5,250, for a total maximum contribution of $21,750 if you are age 60-63 in 2025 (still not bad!). 
  • This “super catch-up” rule only applies to employer-sponsored plans. The contribution limits for traditional and Roth IRAs for 2025 remains the same in 2025: $7,000 if you’re under age 50 and $8,000 if you’re over age 50.  

These new limits could mean a big boost to your retirement savings strategy and future growth. The key here is to be strategic and do what you can, when you can.  

 

2. Automatic Enrollment May Mean You Need to Re-examine Your Strategy 

For 401(k) plans established after December 29, 2022, a new feature will be required in 2025: automatic enrollment. The idea behind this feature is to help increase enrollment and nudge employees to save for their future. Great idea – but for some, this new mechanism may counteract other retirement savings strategies already in play. So be careful this doesn’t lead to headaches for you.  

For example, let’s say you are age 45 and you work at 2 different employers and you are eligible to contribute to both 401(k) plans. You have reviewed the plans with your financial planner and decided that you want to maximize your contributions to one of the plans, but opt out of the second one. That means you contribute $23,000 (the 2024 maximum) to Employer A and $0 to Employer B.  

If the new automatic enrollment feature kicks in with Employer B, you could be automatically signed up to contribute 3% or more to that plan. (Employers can choose anywhere from 3% – 10% as the initial automatic contribution rate.) Assuming you still max out Employer A’s plan, this new feature could potentially cause you headaches because you would be overcontributing unknowingly. Oops.  

You can easily fix this by contacting the Human Resources Department at Employer B and opting out, but you need to be on top of this. Otherwise, you might be having a conversation with the IRS about returning those excess contributions – potentially with a penalty.  

Bottom line, if you have a 401(k) plan, ask your HR Department about automatic enrollment in 2025. 

 

3. Roth Contributions for Employer Matches Means More Tax-free Opportunities  

While not actually new in 2025, I am seeing this feature coming across people’s radar now. I imagine that employers had to take a few years to implement this, which is why it may seem new. 

In the past, employees with a Roth 401(k) option could typically put their own money into the Roth version of the plan, but their employer contributions had to go into a separate, pre-tax account. That means many employees who wanted to take advantage of Roth contributions ended up with an odd hybrid of Roth and pre-tax money.  

After SECURE ACT 2.0 was passed, employers had the option to allow the employer match to go to the employee’s Roth account instead. This option has to be selected by the employer – it isn’t automatic.  

This sounds great! But again, it is a double-edged sword, so be aware. Since Roth contributions are post-tax, your employer match in this scenario is added to your reported earned income. That may kick you into a higher tax bracket.  

On the other hand, Roth earnings in this scenario can be taken out tax-free in retirement, which is good news (and probably what you intended, anyway). So just make sure you crunch the numbers and know what to expect before jumping into this option, if it’s offered. 

 

And there you have it, my friends! Some exciting changes are coming to the land of retirement savings. Be smart and savvy about how to incorporate these new rules into your overall financial plan – especially if you are in your 50’s and older.  

And if you’re not sure about how to do this, please contact me anytime. I love to help people with tax strategy, savvy planning, and keeping current with the new opportunities out there!