Kevin J. Bonnett, CPA
Vice President & Director of Employee Benefit Services

The “SECURE 2.0” Act enacted in 2022 continues to introduce significant changes each year to the rules around retirement plan savings, and 2025 is no different.   

SECURE 2.0 (so-called because it was a follow up to the Setting Every Community Up for Retirement Enhancement Act of 2019) included several provisions that will change retirement plans for certain participants. The more significant changes will be phased in over several years.
Here are a few of the changes that have taken effect in 2025:

Big Boost in Catch-up Contributions

Since 2001, workers aged 50 and older have been able to boost their 401(k) contributions above the limit for younger plan participants with a “catch-up contribution.” The idea was to help older workers who may not have saved at the highest possible level in their younger years sock away a bit more money in their higher-earning years.

In 2025, a subset of older workers – those aged 60 through 63 – will be able to make catch-up contributions of $11,250 or 150% of the standard catch-up contribution limit of all other eligible individuals.

An account holder can take advantage of this additional catch-up contribution if they attain age 60 but are not older than age 63 by the end of the calendar year.

Automatic Enrollment

New 401(k) plans established on or after December 29, 2022, are required under SECURE 2.0 to implement an automatic enrollment feature unless an exception applies. The goal of this provision is to increase participation in individual retirement savings.

The initial automatic enrollment contribution must be at least 3% but not more than 10%. Each year thereafter, that amount increases by 1% until it reaches at least 10%, but not more than 15%.

Automatic enrollment does not mean mandatory participation. Employees can change the rate or can opt out by electing a zero percent contribution rate.
SIMPLE IRA and Catch-up Contributions

Annual employee deferrals to SIMPLE IRAs had a limit of $16,000 in 2024 but individuals aged 50 or older are allowed to make an additional “catch-up” contribution of $3,500, for a total of $19,500.

Beginning in 2025, there is a new increase in the catch-up contribution limits for participants who have reached ages 60 through 63. The new catch-up contribution limit will increase to the greater of $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA plans in 2025, $5,250. Cost-of-living adjustments will begin in 2026.

New 10-year rule for Inherited IRAs Takes Effect

This provision of SECURE 2.0 was designed to curb the “stretch IRA” strategy that many taxpayers had employed, which allowed IRA owners to pass account assets to their heirs upon their death while taking advantage of prolonged tax-deferred growth of the assets.
Under SECURE 2.0, beneficiaries who inherited an IRA from a decedent who died on or after January 1, 2020, must withdraw all funds no later than December 31 of the tenth full calendar year following the death of the original owner.

• However, there are exceptions for inherited IRAs and the following four types of beneficiaries can still utilize the ‘stretch IRA:’
• Surviving spouses
• A child of the decedent under the age of 21
• A beneficiary who is not more than 10 years younger than the decedent
• An individual who is disabled or chronically ill

If you are one of the four types of beneficiaries described above, you must still withdraw funds from the inherited IRA over your lifetime beginning in the year following the decedent’s death. A surviving spouse can transfer the inherited funds from the IRA into his or her own IRA and is not required to start withdrawing funds from that IRA until attainment of the “required beginning date” (“RBD”).
Inherited IRA RMD Penalties Take Effect

The IRS delayed implementation of the final rules governing inherited IRA RMDs until 2025. However, the IRS has provided transitional relief for beneficiaries who did not take RMDs from their inherited IRAs in 2021 through 2024. Starting in 2025, a 25% penalty will be assessed for those who do not take their RMD.

Generally, the 25% penalty drops to 10% if a taxpayer takes the necessary RMD by the end of the second year following the year it was due.

If you have any questions about how changes in retirement plan rules may affect you, contact your GT Reilly advisor.