How you manage your retirement savings will largely dictate how much disposable income you have during the last years of your life. Of course, some unforeseen circumstances can wipe out your savings, but for the vast majority of people, planning with care is enough to have a comfortable retirement. This is why it is key to remain up to date with any changes and updates that the Internal Revenue Service (IRS) might make to their retirement contribution rules in order to maximize your tax advantages, save more money for retirement, and avoid unexpected tax bills.
1. New IRS 10-year rule for inherited IRAs
It can feel like getting whiplash when after a lifetime of putting money into a 401(k), traditional IRA, or Roth IRA you are faced with taking the money out. And that is made worse by the fact that it is not exactly easy.
The first thing to know is that, for now, required minimum distributions (RMDs) start at age 73 for most people as long as it is their own account. This changes when the account is inherited, as then other rules apply.
Starting in 2025, most non-spouse beneficiaries of inherited IRAs will have to follow a new “10-year rule” for required minimum distributions (RMDs). This will not apply in cases of lifelong disability and other circumstances, but for most the money in the account should be withdrawn in yearly increments so that the account is emptied within 10 years of the original account owner’s death. This has tax implications for the heirs, who before could wait until the 10th year to withdraw the money, but not cannot and have to contend with the increase in taxable income that this brings.
The one thing that has not changed regarding RMDs is that the money must be taken out of the account on time or the IRS will fine you for not making the withdrawal on time. The fine will amount to 25% of the amount that should have been withdrawn, plus, the withdrawal will still need to be made and taxes will have to be paid on the amount. The fine may be reduced to 10% if the mistake is corrected within the first two years, but caution will need to be exercised.
2. Bigger catch-up contributions for people aged 60-63
Since most people are not near the saving goals for a comfortable retirement and making extensive contributions in the beginning of a working career can be complicated due to low income and other financial obligations, the IRS has an incentive for those aged 50 and over. This group of people can put extra money into 401(k)s and IRAs each year, in what are called “catch-up contributions.”
The new IRS rules allow for people aged 60 to 63 to make even bigger catch-up contributions of $10,000 or 150% of the regular catch-up contribution limit, whichever amount is higher for the person to any workplace retirement plans. From 2025 onwards, contribution limits will be indexed to inflation, allowing for bigger contributions for those 50 and over to better account for cost of living adjustments.
3. New IRA contribution limits for 2025 (possibly)
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Every year, the IRS updates retirement plan contribution limits for the next tax year, but this year they haven’t released 2025’s limit yet. Right now, for 2024, you can put up to $7,000 into traditional or Roth IRAs
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. If you’re 50 or older, you get an extra $1,000 as a catch-up contribution (which we have already explained will change for those 60 to 63). It has been reported that the 2025 limit could stay at $7,000 or increase, but no official word has come out yet.
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