Retirement Plan Changes in 2025
Some of the changes to retirement plans made by the SECURE Act 2.0 had delayed fuses on them and are only now going into effect.
Automatic enrollment in 401(k) plans
The 401(k) plan has generally proven popular with employees, but perhaps not popular enough. Under the old law, an employee had to take action to participate in such a plan. For plans established on or after December 29, 2022, employee enrollment must be automatic, the default choice. Initial deferral percentages must be at least 3% of covered wages, but not more than 10%. The deferral rate must increase by 1% per year, easing the employee into a gradually increasing savings rate, until the deferral is at least 10% but not more than 15%.
However, this change in the law does not make participation in a 401(k) plan mandatory. Each employee is free to change the deferral rate, including to a rate of zero. If there is an employer match, the employee would be wise to defer at least as much as is required for a maximum matching contribution.
Higher contribution limits for pre-retirees
For those who failed to save for their retirement early in their careers, the tax code has long permitted age-based “catch-up” contributions to IRAs and 401(k)s. The SECURE Act 2.0 established an even bigger 401(k) catch-up for those who are 60, 61, 62, and 63—a bonus contribution of $3,750. The change has taken effect for the 2025 tax year.
The table below shows the age-based 401(k) contribution limits for 2025 after inflation is taken into account.
The supersized limit does not apply to IRAs. The 2025 limit for deductible IRA contributions will be $7,000, with a catch-up allowance of $1,000 for taxpayers ages 50 and older. The IRA catch-up will be indexed for inflation in the future.
Although the added incentive to boost savings just before retirement begins is welcome, it’s not something to rely upon. Putting more money into a 401(k) plan early in one’s career, starting in one’s 30s or even 40s, will do far more for retirement financial security than larger contributions late in the earning years. Earlier contributions have the benefit of many more years of compounding growth.
401(k) lost and found
The Department of Labor (DOL) was directed by the SECURE Act 2.0 to establish a Retirement Savings Lost and Found online searchable database, to be available to the public by December 29, 2024. DOL worked with the IRS and the Social Security Administration to populate the database, and last November a request was made to plan sponsors for assistance. Information to be collected from plan administrators includes details about the plan and plan administrator, along with names and Social Security numbers of separated vested participants who have reached age 65 and are owed vested benefits, including deceased participants who would have been age 65 or older if they had survived and whose beneficiary is entitled to a benefit. Participation in the program by plan sponsors is voluntary.
According to one estimate, there are about 29 million “orphaned” or forgotten 401(k) accounts, holding an estimated $1.65 trillion. Over time, it is hoped that the availability of the database will restore these retirement resources to their rightful owners.
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