There are three important 401(k) plan changes coming in 2025 that are worth keeping an eye on, regardless of when you plan to retire, whether you work full-time or part-time, and whether you even have a 401(k) plan at all.
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In late 2022, Congress passed legislation to help savers build their retirement savings through more accessible enrollment in retirement plans, higher catch-up contribution limits, and more. The SECURE 2.0 Act, which builds on the original SECURE—Setting Every Community Up for Retirement Enhancement—Act of 2019, includes more than 90 retirement-related rule changes and provisions for all types of retirement plans.
SECURE 2.0 changes begin in 2023 and will continue through 2027. Find out how 401(k) changes coming into effect in 2025 could make it easier to put away more money for retirement.
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SECURE 2.0 Act 2025 401(k) Plan Changes
The following changes also apply to 403(b) plans. Take a look.
1. Automatic enrollment in new 401(k) plans
If you signed up for your company's 401(k) plan before SECURE 2.0, you likely had to contact your human resources department or go to your company's website to sign up once you became eligible.
Starting in 2025, all new 401(k) plans — those established after Dec. 29, 2022 — must automatically enroll eligible employees unless they opt out. If you work for a company with fewer than 10 employees or a company that is less than three years old, your employer is exempt from the automatic enrollment requirement. Government and church plans are also exempt.
Your employer can set the initial contribution rate from 3% to 10% of your salary, or you can select your percentage. According to Vestwell, 6% is the most common set contribution rate for employers. Your contribution rate will automatically increase by 1% each year until it reaches the maximum set by your employer, unless you choose otherwise. An employer can set their maximum contribution rate from 10% to 15%.
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2. Faster eligibility for part-time workers
Currently, you must work 1,000 hours per year or 500 hours in three consecutive years to qualify for your employer's 401(k) plan.
Next year, the three years will be reduced to two, making part-time workers eligible sooner. This change could be beneficial to you if you have multiple part-time jobs instead of one full-time job.
Keep in mind that if you work two jobs and enroll in and contribute to two 401(k) plans, you cannot let your total annual contributions exceed the annual limit. For example, in 2024, the 401(k) contribution limit is $23,000. So if you contribute $15,000 to Plan A, you can only contribute $8,000 to Plan B.
3. Higher catch-up contributions for older employees
A recent AARP survey found that among adults 50 and older, 61% worry they won’t have enough savings to see them through retirement, and 20% haven’t started saving for retirement. If you’re worried about falling behind on your savings, SECURE 2.0 will improve your ability to catch up.
The 2024 401(k) catch-up contribution limit is $7,500 for those 50 and older. Starting in 2025, if you are between the ages of 60 and 63, you will have a higher contribution limit than those in their 50s. Your catch-up contribution limit will increase to the greater of $10,000, or 50% more than the normal catch-up limit. So, for example, the 2024 contribution limit remains at $7,500 for 2025; you can “catch up” in 2025 up to $11,250.
After 2025, the increased limit will be adjusted for inflation to keep pace with rising costs.
SECURE 2.0 Act changes not limited to 401(k) plans
SECURE 2.0 affects all types of pension plans and the changes are not limited to contributions. There are also several changes to the withdrawal rules.
If you have a retirement plan, it’s worth learning about these changes. The more you understand how your plans work, the easier it will be to maximize your savings efforts.
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This article originally appeared on GOBankingRates.com: 3 Changes to 401(k) Plans in 2025
