IRS announces changes to 401(k) and IRAs

The Internal Revenue Service (IRS) has announced several changes to Individual Retirement Accounts (IRAs) and 401(k) plans for 2025. These updates aim to help Americans save more for retirement. One major change is the increase in catch-up contributions for those aged 60 to 63. They can now contribute an extra $11,250, bringing their total workplace retirement account contribution limit to $34,750. This is designed to help older workers who may have minimal savings build a more substantial retirement fund. Part-time workers will also benefit from the new rules. Starting in 2025, they can qualify for their company’s 401(k) plan after just two years instead of the previous requirement of three years. This allows more part-timers to start saving for retirement sooner.

Irs updates retirement savings rules

To encourage participation, any 401(k) plan established after December 29, 2022, will automatically enroll eligible employees. The minimum contribution will be 3%, increasing by 1% each year until it reaches 15%. Employees can choose to opt out if they wish. Lastly, the IRS is enforcing the “10-year rule” for inherited IRAs. Heirs must empty the entire balance within 10 years of the original account owner’s death or face a 25% penalty. This applies to anyone who has inherited an IRA since 2020. These changes reflect the IRS’s efforts to improve retirement savings options for workers across the country. It is recommended to consult with a financial advisor to understand how these updates may impact individual retirement planning strategies.