IRS Confirms Big Changes to 401(k) Plans – List of the Top 4

Every working American’s experience must include saving for retirement. The majority of workers will receive Social Security benefits, but they might not be enough to meet all of their retirement-related costs. Savings can be increased by keeping up with Internal Revenue Service (IRS) developments.

To maximize their chances of saving in 2025, employees should be aware of impending changes to 401(k)s and other retirement vehicles.

1. Contribution limits will increase

Employees’ ability to contribute as much as they would like to because of tax benefits is restricted by contribution restrictions, which apply to 401(k)s and other retirement plans. 2025 is not an exception to the IRS’s regular adjustments to contribution caps to account for inflation and the value of the dollar.

The contribution cap for those under 50 will increase from $23,000 in 2024 to $23,500 in 2025. Regular catch-up payments of $7,500 can be made by savers over 50, for a total of $31,000 annually. More restrictions, especially for senior citizens, present chances for all savers to increase their retirement funds and safeguard their financial future. The maximum contribution will result in a double contribution because many of these plans are employer-matched.

2. Catch-up contributions will increase for those ages 60 to 63

Because younger workers have more responsibilities and older workers might not have enough money to support post-retirement expenses, the IRS has chosen to boost payments for those between the ages of 60 and 63. Super contributions, sometimes referred to as enhanced catch-up contributions, allow individuals who are getting close to retirement to increase their savings even more.

Ordinary catch-up payments for those outside of that age group will continue to be $7,500 in 2025, while the enhanced catch-up contribution will be $11,250.

3. Employers will be required by the IRS to automatically enroll employees

Employees frequently forget to enroll in 401(k) plans since they may need to stay at work for a while. According to new regulations, companies with eleven or more workers must automatically enroll new hires in 401(k) plans.

For the first year, the company will set a default rate of 3% to 10% of pay to help employees who might not have saved for retirement. Once more, these contributions will increase by 1% year to ensure that they keep up with inflation and the dollar’s value, reaching a maximum of at least 10% but not more than 15% of compensation.

Although employees have the option to opt out and drastically reduce their contributions to zero, the company’s implementation of an automatic process will help those who are not aware of their options increase their contributions and take advantage of the plans.

4. More part-time workers will become eligible

Due to their limited work hours, part-time employees could not be eligible for a 401(k) plan.

In 2024, part-time workers who put in 1,000 hours in a single year or at least 500 hours every year for three years are eligible to join their employer’s 401(k) plan. The year requirement will drop to two in 2025.

Also See: Social Security announces the formal dates of payment; checks are on their way in December.

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