This law, SECURE 2.0, has made a lot of good changes for people who are saving for retirement. But the most important thing to remember about Individual Retirement Accounts (IRAs) is the rules and making the most of your contributions and withdrawals within those rules.
Most of the changes that were made to retirement accounts affect both standard and Roth IRAs, so it’s important to know about them the same way.
Because the SECURE 2.0 Act makes changes that don’t happen all at once, here are the four changes that will happen to IRAs in 2025:
1. Bigger catch-up contributions for people aged 60 to 63
Employees aged 50 and up can make extra payments into their tax-advantaged retirement accounts through catch-up contributions. This lets adults, who should be making the most money in their jobs at that age, give more to make up for the years when they didn’t make as much.
This catch-up contribution is worth $1,000 in 2024, after taking inflation into account. This brings the overall contribution limit to $8,000.
But from 2024 to 2025, people aged 60 to 63 can contribute either $10,000 or 150% of the catch-up contribution cap for 2024, whichever is higher. This means that you can put up to $10,000 into your IRA, which is $2,000 more than this year.
2. SIMPLE IRAs and catch-up contributions for people aged 60 to 63
In 2024, the most an employee could put into a SIMPLE IRA each year was $16,000. However, people aged 50 and up can now make an extra “catch-up” payment of $3,500, bringing the total to $19,500.
Another change coming in 2025 is that people aged 60 to 63 will be able to make an extra “catch-up” payment of $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA. Starting in 2026, this cap will be changed to account for rising costs of living.
3. New 10-year rule for inherited IRAs takes effect
If you got an IRA from someone who died on or after January 1, 2020, you need to follow some new rules. You have until December 31 of the tenth year after the original owner’s death to take all the money out of the IRA that you received. This is the most important rule.
With this change, the “stretch IRA” strategy is no longer possible. With this strategy, beneficiaries could spread out payments over their lifetime, which let the account grow tax-free for a longer time. Not all people have to follow this new rule; some can keep the money in the account for longer.
After receiving an inheritance, people who are disabled or chronically ill, the original owner’s children under 21 years old, or heirs who are no more than 10 years younger than the decedent can continue to take money out for as long as they live. This starts one year after the inheritance is received.
Having a surviving spouse gives you an extra benefit: you can put the money you received into your own IRA and don’t have to start taking money out until your required withdrawal date.
4. Inherited IRA RMD penalties take effect
People who didn’t take their required minimum payments (RMDs) between 2021 and 2024 will not be fined as much by the IRS until 2025. This is because of the confusion caused by the pandemic and the changes to the rules.
People who don’t take their RMD will have to pay a 25% penalty starting in 2025 if they don’t. They will also have to take out the original amount and pay taxes on it if the account was tax delayed.
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