With the rising cost of living, many Americans struggle to save enough for retirement. What’s more concerning is that they risk outliving their savings.
When the SECURE Act 2.0 was enacted in 2022, the aim was to increase financial preparedness for retirement by increasing contribution limits and transparency around 401(k) and IRA account fine print.
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Now, a few provisions of the legislation have gone into effect for 2025 that workers may want to take note of, especially those with 401(k)s, 403(b), and IRA accounts.
There are several changes Americans should keep an eye on to maximize their retirement savings as they plan for the future.
A retired couple is seen walking along a beach. Saving for retirement can be complicated, and Americans should be aware of the new 2025 401(k) and IRA contribution limits.
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SECURE 2.0 aims to incentivize retirement savings
The U.S. is on track to reach a $137 trillion retirement income gap—the difference between what retirees have saved and how much they’ll actually need to retire. This concerning trend prompted Congress to pass SECURE Act 2.0 to improve the American retirement planning process.
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The act’s overarching goals are to help Americans save more for retirement by simplifying account enrollment and increasing catch-tup contributions for older workers.
Here are the main changes most workers will see this year:
Automatic enrollment in employer-sponsored plans: In 2025, new employees will be automatically enrolled in their employer’s retirement plan and must manually opt out if they don’t want to contribute. The employee’s deduction will increase by 1% each year until their contributions reach at least 10% of their pre-tax income.Higher catch-up limits: For workers aged 60-63, catch-up contributions will increase from $7,500 to $11,250 for 401(k)s, and increase from $3,500 to $5,250 for SIMPLE IRAs. After 2025, the catch-up contributions will be indexed to match inflation.Penalty-free hardship withdrawals: the standard 10% early withdrawal penalty will be waived for those with a terminal illness, affected by natural disasters, domestic abuse victims, and those in financial emergencies.
Americans will see retirement improvements rolled out through 2026 and beyond
One of the most crucial elements of saving for retirement is starting early to take advantage of compounding interest. Those who start saving for retirement in their thirties and forties instead of their twenties can miss out on hundreds of thousands of dollars.
Allowing workers to maximize their retirement contributions in their highest-earning working years is one way to help offset the cost of starting retirement planning later in life.
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Providing the flexibility to withdraw for healthcare needs or financial emergencies can help them stay afloat and increase their retirement savings in the long term.
The SECURE Act 2.0 will take a phased approach and continue to implement retirement changes over the next few years.
Required minimum distribution (RMD) age increases: In 2024, the minimum age seniors need to begin making retirement withdrawals was raised from 70 to 73. However, that threshold will increase again to 75 in 2033.Penalty-free long-term care withdrawals: beginning in 2026, the standard 10% early withdrawal fee will be waived for long-term care costs up to $2,500.Saver’s Match: Beginning in 2027, the current Saver’s Credit tax program will be replaced by a federal contribution matching program of up to $1,000 per year, depsited diretcly into retirement plans of lower-income workers.
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