Changes to 401(k)s and Roth IRAs in 2025

Posted: December 20, 2024

Saving for Retirement: What You Need to Know for 2025

The new year is nearly here, which means it’s time to start thinking about year-end IRA contributions and changes for 2025. Individual retirement accounts (IRAs) and 401(k) accounts are your best friends when it comes to saving for retirement, so it’s important to stay on top of changes that affect the way you save.

Year-End reminders
The deadline to contribute to a 401(k) is December 31, 2024. You can continue to make 2024 contributions to Roth and traditional IRAs until April 15, 2025. If you exceed your contribution limit ($7,000 for people under age 50 and $8,000 for people age 50 and older), you can withdraw excess funds by April 15, 2025. If you fail to do this, you will incur a 6% tax each year on the excess amount in your IRA.

People aged 73 and older must take a required minimum distribution (RMD) on retirement savings accounts each year. If you fail to take your RMD for 2024, you will face an excise tax. Remember that the RMD must be calculated separately for each account.

5 Changes to 401(k)s for 2025
Important changes are coming for 2025 that affect your retirement accounts. Here’s what to look out for.

1. Catch-up contributions
   Catch-up 401(k) contributions for people over age 50 allow them to make additional deposits into retirement savings accounts. Beginning in 2025, the catch-up amount increases to $7,500, making the yearly contribution limit $30,500. Taxpayers will also be able to contribute $23,500 to their 401(k), up from $23,000 in 2024. In 2025, people aged 60-63 can contribute a max catch-up amount of $11,250, bringing their total limit for 401(k) contributions to $34,750.


2. 401(k) auto-enrollment
   In 2025, taxpayers will be auto-enrolled into a 401(k) plan that must be at least 3% but no more than 10% of their income. Each year, the contribution amount will increase by 1% until it reaches 10%, but not more than 15%. However, just because taxpayers will be auto-enrolled does not mean participation is mandatory. Employees can change their rate or opt out by selecting 0%.


3. SIMPLE IRA contributions
   SIMPLE IRAs previously had a limit contribution amount of $16,000 per year, and individuals 50 and older could make an additional catch-up contribution of $3,500. In 2025, that contribution limit increases by $500. New catch-up contributions for individuals aged 60-63 will increase to $5,000.


4. Inherited IRAs
   Changes to inherited IRAs are coming as well. Suppose you inherited an IRA from someone who died on or after January 1, 2020. In that case, you are required to withdraw all funds from that IRA no later than December 31 of the 10th calendar year following that individual’s death (e.g., for someone who died in 2020, you would be required to withdraw the money by 2030). There are a few exceptions of people who can benefit from a “stretch IRA” strategy, including:
   • Surviving spouses
   • A child of the decedent under age 21
   • A beneficiary not more than 10 years younger than the decedent
   • An individual who is disabled or chronically ill
   
   People in the categories above must still withdraw funds from the IRA over their lifetimes beginning in the year following the decedent's death. Surviving spouses may also transfer the funds to their own IRA, and are not required to withdraw funds until they reach their required beginning date.


5. Required minimum distribution penalties
   Beginning in 2025, people who do not take the required minimum distribution from their IRA accounts will incur a 25% penalty.

Find the Right Plan
A secure retirement is one of the best gifts you can give yourself—contact us at (414) 761-1000 or visit any WaterStone Bank location for help selecting the account that suits you!