401(K) Alert: Major Changes in 2025 That Will Affect Your Money

Retirement can be a tricky subject, especially when it comes to the various plans. There are new changes slated to take effect in 2025 that everyone should be aware of.

The changes are nothing unusual. In fact, the figures are typically adjusted each year for inflation. The fiscal year ends on September 30, which is why it takes the IRS until late October or early November to release its updates.

Here are the changes you should be aware of beginning January 1, 2025.

Why Are the Changes Taking Place?

In December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act went into effect. This allowed small businesses to set up more affordable retirement options for their employees. It also permitted part-time employees to participate.

In 2022, President Joe Biden signed the SECURE 2.0 Act, which expanded the 2019 law and is responsible for the changes going into effect next year.

Automatic Enrollment

Up until now, in order to enroll in a retirement plan, employees had to reach out to the human resources department to get the paperwork completed. In 2025, all employees will be automatically enrolled in a 401(k) established after the SECURE 2.0 Act’s effective date of December 29, 2022.

Employees do have the choice to opt-out. There are exceptions to the rule, too. Small businesses with fewer than 10 employees are exempt as are church and government plans.

Is There a Specific Rate Employees Are Signed Up For?

This is typically set by the employer and is between 3% and 10% of your salary. That will continue to increase by 1% each year until you reach the maximum. The employer will also set its maximum contribution rate.

If you are not happy with the contribution rate your employer sets, you are not locked in. You can change it and make it higher or lower, depending on your preference.

Part-Time Worker Eligibility

The original SECURE Act allowed for part-time workers to participate in retirement plans providing they met specific criteria. In particular, they had to work either 1,000 hours in a single year or 500 hours over three years.

In 2025, that will change. Part-time workers will now qualify if they work 500 hours over two years, making them eligible a year earlier.

Can Part-Time Workers Contribute More if They Have More Than One Job?

No. The contribution limits are still set in stone, even if you have multiple part-time jobs. For example, if you contribute $10,000 to one, you can only contribute a maximum of $13,000 to another.

Again, if you are 50 or older, you will be able to add catch-up contributions to this amount.

Higher Catch-up Contributions for 60+

Many people in their 50s and 60s are worried that with retirement fast approaching, they won’t have enough money to live on once they quit working. Currently, if you’re 50 or older, you can contribute an additional $7,500 to your plan annually.

The SECURE 2.0 Act is giving those 60 to 63 the opportunity to contribute even more, a maximum of $10,000 or 150% of the catch-up limit, whichever happens to be greater.

What Are the Overall Contribution Limits?

As of the time of writing, the IRS has not released the contribution limits for 2025. In 2024, it was $23,000 for the average worker. Inflation data may skew the figures, but it’s expected the IRS will increase that figure to $23,500.

Anyone 50 and older can contribute an additional $7,500, for a total of $30,500. The standard catch-up contribution limit may also increase once the IRS releases its figures. It’s expected to be adjusted for inflation, as well, after 2025, to keep on pace with the rising costs of living.

Upfront Tax Breaks for High Earners

Per the SECURE 2.0 Act, catch-up deposits made by high earners—those who make $145,000 or more per year—will eventually be taxed. The IRS also plans to limit those deposits into after-tax Roth accounts. That was due to go into effect in 2024.

However, in August of 2023, the IRS delayed the rule until January 2026, which means high earners can still make their catch-up contributions to their 401(k) accounts.

Are Any Other Retirement Plans Affected?

Yes. In addition to 401(k) plans, those with 403(b) and 457(b) plans can also participate in the higher catch-up contribution amounts.

The 403(b) plans are also subject to the same plan changes as 401(k)s. If you have questions about your plan in general, speak with your employer.