by Dan Whitaker, CFP®
Administrative Services Project Manager
There are two SECURE Acts, both of which were designed to enhance retirement savings and provide more flexibility for savers by updating and introducing new retirement planning rules. The first, SECURE 1.0, took effect in January 2020 while the second, which was built upon the same foundation, was signed into law in December 2022. Both acts contain numerous pieces of legislation, different effective dates and nuances that can make it challenging to stay on top of the changes. As we step into 2025, it is crucial for individuals and employers alike to stay informed about significant changes to retirement plan rules introduced by the SECURE 2.0 act. Let's delve into some of the key changes taking effect this year.
Annual Contribution Limit
As expected, the annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan has been increased to $23,500, up from $23,000. Those age 50 or older can make an additional catch-up contribution of $7,500. However, Secure 2.0 introduced a new super catch-up contribution limit for individuals turning 60, 61, 62, or 63 before the end of the year beginning in 2025. These individuals can now contribute up to $11,250, or 50% more than the regular catch-up amount of $7,500, to their retirement plans. These amounts will be indexed for inflation in future years, providing a significant boost to retirement savings for those nearing retirement age.
Starting in 2025, SECURE 2.0 also introduced a new super catch-up provision for SIMPLE IRAs for individuals turning 60, 61, 62, or 63 before the end of the year. For 2025, the standard contribution limit is $16,500 and those aged 50 and older can save an additional $3,500 as a catch-up contribution. However, SECURE 2.0 allows for 60–63-year-olds to instead make a maximum SIMPLE IRA “super catch-up” of $5,250. Individuals over 64 revert to the lower $3,500 catch-up contribution limit. If you participate in a SIMPLE IRA, there are additional rules on contribution limits depending on employer size. Consult with your employer or tax advisor to see if your plan is affected.
For individuals who are at least 50 years old and earn more than $145,000, 2025 is the last year they are allowed to make pre-tax catch-up contributions to employer-sponsored 401(k). Starting in 2026, these catch-up contributions must be made on a Roth basis, using after-tax money. If this rule may apply to you, speak with your employer to verify that your employer-sponsored retirement plan has a Roth 401(k) option.
Required Minimum Distributions
With SECURE 1.0, the IRS introduced the concept of the 10-year rule, where certain beneficiaries of Inherited IRAs must distribute the full account balance by the end of the tenth year following the decedent’s passing. However, there was confusion about how the new rule applied in certain situations and whether individuals may need to take annual distributions in addition to emptying the IRA by the tenth year. Given this confusion, the IRS delayed the enforcement of required minimum distribution (RMD) penalties for those inherited IRAs opened between 2020 and 2024 that are subject to the 10-year rule. This delay offered more time to understand and comply with the new distribution requirements without penalty. 2025 marks the first calendar year that these penalties will be enforced, and certain beneficiaries will be required to distribute from their inherited IRAs. Fortunately, SECURE 2.0 reduced such penalty from 50% to as low as 10% in some instances.
Eligibility
SECURE 2.0 is making strides towards inclusivity by extending retirement plan eligibility to more part-time workers. Employees working at least 500 hours a year for two consecutive years will now be eligible to join their company's 401(k) or 403(b) plan. Prior to 2025 plan years, eligibility requirements were often higher, requiring part-time employees to work at least 500, but fewer than 999 hours in three consecutive years. This change helps ensure that part-time workers have the opportunity to save for the future.
The SECURE 2.0 Act brings a wave of new requirements but also opportunities that can significantly impact your financial future. Partner with your accountant and team at Ferguson Wellman and West Bearing to ensure that you are taking full advantage of these provisions and navigating these changes effectively.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. We believe the information provided is from reliable sources but should not be assumed accurate or complete. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.