Saving for retirement is an essential component of every working American’s experience. Most workers will receive Social Security payments, but they may not cover all expenses during retirement. Staying informed about changes implemented by the Internal Revenue Service (IRS) can help boost savings.
In 2025, workers should be informed of upcoming changes to 401(k)s and other retirement tools to maximise their savings prospects.
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Contribution limits will increase
Contribution restrictions apply to 401(k)s and other retirement plans, limiting employees’ ability to contribute as much as they would want due to tax benefits. The IRS periodically adjusts contribution limits to reflect inflation and the value of the dollar, and 2025 is no exception.
In 2025, the contribution ceiling for people under 50 will rise to $23,500 from $23,000 in 2024. Savers over 50 can continue to make ordinary catch-up payments of $7,500, for a total of $31,000 every year. Increased limitations, particularly for older adults, offer opportunities for all savers to boost retirement savings and secure their financial future. Many of these plans are employer-matched, so contributing the maximum amount will result in a double contribution.
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Catch-up contributions will increase for those ages 60 to 63
The IRS has decided to increase payments for those aged 60 to 63, as younger workers have more obligations and older workers may have insufficient funds to cover post-retirement expenses. Enhanced catch-up contributions, also known as super contributions, enable those nearing retirement to boost their savings further.
In 2025, the enhanced catch-up contribution will be $11,250, while ordinary catch-up contributions for people outside that age range will remain at $7,500.
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Employers will be required by the IRS to automatically enroll employees
Enrolling in 401(k) plans is often overlooked by employees, as it may require some stay at the workplace. New laws require organisations with 11 or more employees to automatically register new employees in 401(k) plans.
To assist workers who may not have saved for retirement, the employer will set a default rate of 3% to 10% of salary for the first year. Again, to guarantee that these contributions keep pace with inflation and the value of the dollar, they will rise by 1% per year, to a maximum of at least 10% but no more than 15% of remuneration.
This is not a mandatory contribution; employees will be able to opt out and reduce their contributions to zero or significantly lower them, but having the company implement an automatic process will assist those who are unaware of their options in increasing their contributions and taking advantage of the plans.
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More part-time workers will become eligible
Part-time employees may not be qualified for a 401(k) plan due to limited hours worked for the employer.
In 2024, part-time employees can join their company’s 401(k) plan if they worked 1,000 hours in a single year or at least 500 hours yearly for three years. In 2025, the year requirement will be decreased to two.
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