Important Retirement Plans Updates in 2025

New year, new rules, and new limits. In an increasing effort to help employees save for their retirement future, the SECURE 1.0 and SECURE 2.0 legislative acts contain several changes affecting retirement plans sponsors and participants. Over the next few months, we will deliver a series of articles which will take deeper dives into some of the newest rules and opportunities for retirement plans. Here is a preview of what’s to come. If you would like additional details on any of these changes and what they may mean for your business, your employees and your savings, I’m ready to talk.

2025 Retirement Plan Limit

As in past years, the IRS has released details on the changes in the annual dollar limits for retirement plans. We have prepared a recap of these important limits in an easy-to-read Quick Reference Card. The card available here details the numerous dollar limits qualified plans are required to use in their operations.

New Super-sized Catch-up Limits in 2025

Age has its benefits! When SECURE 2.0 was signed into law in late 2022 it included the ability for certain plan participants to take advantage of an Enhanced Catch-up Contribution. Beginning in 2025, this Enhanced Catch-up Contribution plan provides participants who are 60-63 years of age as of December 31, 2025, with a Catch-up Contribution equal to $11,250 ($5,250 for SIMPLE-IRA participants). While available for only a few years of age, this is a fantastic opportunity for those closing in on retirement to bolster their savings.

Automatic Enrollment in 2025

To help increase retirement savings participation, the SECURE 2.0 Act mandates that most new plans which allow for salary deferrals must, beginning in 2025, automatically enroll plan participants in the Plan’s salary deferral arrangement. Unless a participant provides instructions electing to not have salary deferrals or deferrals at a rate less than the plan required rate, salary deferrals will automatically be withheld from wages. The automatic enrollment rate for new plans is required to be at least 3% of wages and is subject to an automatic annual increase of at least 1% until it reaches as least 10% of wages. While this change is limited to newer plans, it is something to be aware of if you are considering adding a retirement plan to your employee benefits package.

“Rothificaton” of Retirement Plans

Currently available, plan sponsors have the option of including language in their plan documents which allows employees to elect to treat some employer funded contributions as Roth.

Starting in 2026, any catch-up contributions made by plan participants with FICA wages over $145,000 (adjusted annually for inflation) will be required to be made on a Roth basis.

 RMDs, Beneficiary Accounts and Penalties: New Rules

The SECURE Acts have also made changes to inherited individual retirement accounts (IRAs) and retirement plan accounts and required minimum distribution rules. As with many things regulatory, these new rules make some things easier, while other elements become more complicated.  The Good: the age at which an IRA holder or a plan participant must begin taking required minimum distributions is increased from age 70 ½ to age 73. The Better: Funds held in a 401(k) plan in the form of Roth Deferrals are no longer subject to required minimum distributions. The Complicated: The rules governing inherited IRA and retirement plan account distributions have become, in many cases, less generous than previous rules. Generally, a beneficiary who is not deemed to be an Eligible Designated Beneficiary, will now be required to withdraw all funds within 10 years after the account holder’s death. This is a shift from previous rules that allowed more flexible withdrawal schedules, so it’s important to factor this into estate planning decisions. Making these changes more palatable are reductions in the penalties associated with missed required minimum distributions.

New Tax Credits for Plan Sponsors

To reward employers for helping their employees save for retirement, SECURE 2.0 created new refundable tax credits for Plan sponsors. These new credits include a startup credit to help offset the costs of implementing a new retirement plan, a tax credit for Plan sponsors that amend their plan to include an automatic enrollment provision, and a credit for smaller plans for new employer funded contributions for plan participants.

Student Loan Repayment Matching

In another attempt to boost retirement savings, new rules allow employers the option to match employees’ student loan repayments with contributions to their retirement plans. This unique initiative helps employees pay off their student debt while simultaneously building their retirement savings, making it easier for younger employees to save.

Expanding Retirement Saving Access for Part-Time Workers

One of the key features of the SECURE Acts is its effort to improve retirement savings access for part-time employees. Under the new regulations, part-time workers will have greater eligibility to participate in employer-sponsored retirement plans, helping more workers save for their future.

Penalty-free Pre age 59½ Withdrawals

In an effort to support financial flexibility, the SECURE 2.0 Act allows for penalty-free early withdrawals for individuals facing certain emergencies; generally, a 10% early withdrawal penalty would be assessed. This includes cases of domestic abuse, terminal illness, and other qualifying emergencies, providing workers with more access to funds when unexpected situations arise. These new distribution options are not automatically available, so if this is something you may be interested in providing in your plan, please reach out to discuss needed plan amendments.

Enhanced Saver’s Credit

The Retirement Savings Contributions Credit, also known as the Saver’s Credit, designed to incentivize low-income individuals to contribute to retirement savings, has been expanded. This enhancement will increase the tax credit available to eligible employees, making it easier for lower-income individuals to build their retirement savings.

Emergency Savings Accounts

Employers now have the option to offer emergency savings accounts linked to retirement plans. This feature allows employees to save for short-term emergencies without penalties, giving them more flexibility and security in their financial planning.

Need Help Navigating These Changes?

If you have questions about how the new retirement plan changes will affect your retirement plan or are interested in discussing implementing a retirement plan for you and your employees, feel free to reach out. We’re here to help you make the most of these updates and ensure your retirement plan strategy is on track for your business’ success and your employees’ retirement future. Contact our team today.