The Internal Revenue Service (IRS) has announced significant changes to Individual Retirement Accounts (IRAs) and 401(k) plans for 2025. The updates aim to help workers save more for retirement by adjusting contribution limits and catch-up provisions. Starting in 2025, individuals aged 60 to 63 can make “super” catch-up contributions of up to $11,250 to their workplace retirement plans.
This is an increase of $3,750 from the current catch-up limit for those 50 and older. With this change, eligible workers could save up to $34,750 annually in their 401(k) or similar accounts. Part-time employees will also benefit from the new rules.
The requirement for part-timers to work three consecutive years before qualifying for their company’s 401(k) plan will be reduced to two years. This change makes it easier for part-time workers to start saving for retirement sooner. Another significant update is the automatic enrollment mandate for new 401(k) plans established after December 29, 2022.
Beginning in 2025, these plans must automatically enroll eligible employees at a minimum contribution rate of 3%, which can increase by 1% each year up to 15%. Employees can choose to opt out if they wish.
Retirement plan updates for 2025
The IRS is also enforcing the “10-year rule” for inherited IRAs. Heirs who inherit an IRA must empty the account within ten years of the original account holder’s death or face a 25% penalty on the remaining balance. This rule applies to IRAs inherited since 2020.
While the super catch-up contribution provides a significant opportunity for older workers to boost their retirement savings, many may struggle to afford it. According to the Economic Policy Institute, the typical household headed by individuals aged 55 to 64 has just $10,000 saved in a retirement account. High earners are more likely to benefit from the enhanced catch-up provision, as they are far more likely to maximize these contributions compared to the general population.
Employers are not required to offer the super catch-up option, but most large plan providers anticipate widespread adoption. In addition to the changes for IRAs and 401(k)s, the IRS has adjusted contribution limits for other tax-advantaged accounts based on annual inflation changes. Health Savings Account (HSA) contribution limits will increase to $4,300 for individuals and $8,550 for family plans in 2025.
Flexible Spending Account (FSA) contribution limits will rise to $3,300. These IRS changes for 2025 highlight several adjustments that will affect most Americans’ tax-advantaged savings and retirement accounts. Planning ahead and adjusting contributions can help individuals take full advantage of these new limits to secure a prosperous financial future.
