For 2025, there’s some exciting news for those investing in their 401(k) plans, as the contribution limits have been bumped up. Employees can now squirrel away $23,500, which is an increase from 2024’s cap of $23,000. And for those aged 50 and up, there’s a catch-up contribution option of $7,500.
But here’s where it gets even more interesting: Secure 2.0 introduces a “super catch-up” for folks between 60 and 63. According to Michael Espinosa, a certified financial planner and head of TrueNorth Retirement Services in Salt Lake City, this is a big deal. For this age group, the catch-up contribution limit vaults to $11,250 in 2025. That means their total deferral could hit $34,750. Espinosa points out that this increase could be a game-changer when it comes to deferring taxes that year.
Interestingly, Vanguard’s report, “How America Saves 2024,” found that 15% of eligible participants made use of catch-up contributions in 2023. This data was collected from a wide pool, encompassing 1,500 qualifying plans and close to 5 million participants.
When it comes to inherited individual retirement accounts (IRAs), they could indeed fatten your retirement savings, but there’s a catch you need to be aware of. Experts warn that heirs might have to contend with IRS penalties for missing required withdrawals in 2025. Edward Jastrem, a CFP and chief planning officer at Heritage Financial Services in Westwood, Massachusetts, notes that as economic policies shift, some might overlook this crucial detail.
Since 2020, a rule has stipulated that certain inherited accounts must be fully distributed by the 10th anniversary of the original account holder’s death. This rule generally applies to heirs who aren’t spouses, minors, or have specific disabilities, as well as certain trusts. Come 2025, the IRS plans to crack down on missed required minimum distributions (RMDs) with a penalty of 25% of the amount that should have been withdrawn. However, the good news is you can whittle down that penalty if you make a “timely correction” of the RMD within two years. Heirs are also required to take withdrawals annually if the original IRA owner had begun RMDs before passing away.
Turning our gaze to Social Security, there’s a notable change on the horizon for those in public service. If you or your spouse have built up a career in this sector expecting a pension, there’s a new piece of legislation that could potentially boost your Social Security benefits upon retirement.
In January, then-President Joe Biden signed into law the Social Security Fairness Act. This act put an end to two specific provisions, known as the Windfall Elimination Provision and Government Pension Offset, which previously reduced benefits for many government workers and their spouses. This shift could be quite impactful, and Scott Bishop, a CFP, and partner at Presidio Wealth Partners in Houston, concurs, noting that it’s especially substantial for retirees who previously saw their benefits trimmed or eliminated.
The Social Security Administration is currently ironing out the details and will keep the public updated on its website regarding the timeline for implementing this new legislation.
