Total change in IRA as of this date – It is now official

The SECURE 2.0 Act has brough many positive changes to those saving for retirement, but no matter how many changes are brough to Individual Retirement Accounts (IRAs), the most important thing to save for retirement effectively is to know the rules and maximize your contributions and withdrawals within their scope. Most of the rules that changed regarding retirement accounts apply to both traditional and Roth IRAs, so no matter which one you have, it will be important to be informed.

Since not all changes brough by the SECURE 2.0 Act roll out at the same time, these are the four changes coming to IRAs in 2025:

1. Bigger catch-up contributions for people aged 60 to 63

Catch-up contributions allow employees aged 50 and older to make additional deposits into their tax-advantaged retirement savings accounts. This allow for adults, who should be earning the most money in their careers at that age, to make bigger contributions to compensate for the years of more meager earnings. This catch-up contribution is adjusted for inflation, and it stands at $1,000 in 2024, which makes the total contribution limit $8,000.

However, in 2025 those aged 60 through 63 can contribute whichever amount is higher, $10,000 or 150% of the 2024 catch-up contribution limit that is indexed for inflation. This will make the total limit for IRA contributions $10,000, $2,000 more than this year.

2. SIMPLE IRAs and catch-up contributions for people aged 60 to 63

SIMPLE IRAs annual employee deferrals in 2024 had a limit of $16,000, but workers aged 50 or more can now make an additional “catch-up” contribution of $3,500, for a total of $19,500. Another 2025 change is that those aged 60 through 63 will have an additional “catch-up” contribution limit increase to whichever amount is bigger, $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA. This limit will be adjusted for the cost of living increases starting on 2026.

3. New 10-year rule for inherited IRAs takes effect

For those who inherited an IRA from someone who died on or after January 1, 2020, there are a few new rules to follow. The most important one being that you now have until December 31 of the tenth year following the original owner’s death to withdraw all the funds from the inherited IRA.

This change has ended what was known as the ‘stretch IRA’ strategy, where beneficiaries could previously spread out distributions over their lifetime, allowing the account to grow tax-deferred for a longer period. There are some exceptions to this new rule as some beneficiaries can keep the money in the account for longer. Surviving spouses, children of the original owner who are under 21, beneficiaries who are no more than 10 years younger than the decedent, and individuals who are disabled or chronically ill can continue to withdraw funds over their lifetime starting one year after the inheritance is received.

If you are a surviving spouse, you have the additional advantage of being able to roll the inherited funds into your own IRA and not having to start withdrawals until you hit your required withdrawal date.

4. Inherited IRA RMD penalties take effect

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For those who didn’t take required minimum distributions (RMDs) between 2021 and 2024, the IRS has given some leeway in their fines, delaying penalties until 2025 as a sign of good faith given the confusion on the aftermath of the pandemic and the rule changes. This respite ends in 2025, when the regular 25% penalty will be assigned for those who do not take their RMD, plus they will still need to take out the original amount and pay taxes on the money should the account be tax deferred.

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