Every year, the Internal Revenue Service (IRS) will make cost-of-living adjustments to American retirement plans, with the changes usually amounting to an attempt at countering inflation by increasing the maximum contribution limits for the various types of retirement plans.
This year, however, the IRS will be making other dynamic changes as well, according to a recent report from The Week.
The four changes on the way will likely impact almost everyone who is preparing for their retirement with a 401(k) or an individual retirement account (IRA) — here are the coming changes and what you can do about them:
“Super-Sized” Catch-Contributions
Catch-up contributions are a provision of tax-advantaged retirement savings accounts that allow employees over the age of 50 to make extra contributions to their accounts above the standard contribution limit (the 2025 deferral limit will be $23,500).
However, the IRS has instituted a new change for contributors between the ages of 60 and 63, as they can now “contribute up to $11,250 next year — an additional $3,750 in catch-up contributions,” per The New York Times.
This means contributors aged 60 to 63 can contribute up to $34,750 into their workplace retirement account. If you find yourself within that age group and can afford it, be sure to contribute extra in 2025.
Part-Timers Can Access 401(k) Plans Earlier
Currently, part-time workers must put in 1,000 hours in a year or 5,000 hours across three consecutive years to qualify for their company’s 401(k) plan.
In 2025 though, that three-year limit will drop to two years — if you’re a part-time employee who’s been waiting to hit the three-year mark, you’ve now got one less year to get through.
401(k) Enrollment Will Be Automatic in 2025
Beginning in 2025, any 401(k) plan established after Dec. 29, 2022 will automatically enroll employees — as long as they are eligible and don’t opt out.
This saves you the effort of setting up the 401(k) on your own, with a contribution amount over 3% but less than 10% each year.
Inherited IRA Penalties Will Take Effect After 10 Years
Up till now, any heirs who inherited an IRA were provided “transitional relief who did not take [required minimum distributions] RMDs from their inherited IRAs.”
Now, though, the IRS is subjected inherited IRA accounts to the “10-year rule.” The inherited IRA account must be emptied by the 10th year after the death of the original account owner, otherwise a 25% penalty will be assessed.
As such, if you’ve inherited such an account since 2020, be sure to have the account balance emptied or transferred by the 10th year of your inheritance.