SECURE 2.0: Key 2025 changes to 401(k)s and IRAs for retirees

As the new year approaches, upcoming changes in retirement plans will significantly impact future retirees. With the implementation of the SECURE 2.0 Act, adjustments to 401(k)s, IRAs, and lost retirement funds are coming into play in 2025.

This legislation aims to enhance retirement security, incentivize savings, and simplify plan administration, providing retirees-to-be with new opportunities and responsibilities.

This comprehensive guide will walk through key changes, including increased contribution limits, steps to locate abandoned accounts, deadlines for withdrawals, and best practices for keeping track of retirement funds.

1. Higher contribution limits for older workers

One of the most significant changes under SECURE 2.0 focuses on increasing contribution limits for older workers, giving individuals aged 60 to 63 greater flexibility to bolster their retirement savings in the final stretch of their careers.

As of January 1, 2025, workers in this age range can make “super-sized” catch-up contributions to their 401(k) accounts. This adjustment raises the catch-up limit to $11,250—up from the standard $7,500 for individuals over 50—bringing the maximum total contribution to $34,750 annually.

This increase allows older workers nearing retirement to maximize their retirement savings, offering a valuable buffer as they prepare for their post-work years.

For those with SIMPLE IRAs, a similar increase applies. Employees aged 60 to 63 can contribute an additional $5,250, pushing their total savings beyond the typical cap. As inflation impacts future retirement costs, these elevated limits serve as an essential tool for retirees looking to close any savings gaps and reinforce their retirement funds.

These enhanced contributions also extend to high-income earners. For those making more than $145,000 annually, catch-up contributions must be allocated to Roth accounts, meaning they will be made with post-tax dollars. This move, while reducing immediate tax deferrals, is anticipated to foster more substantial tax-free growth over time, benefiting retirees in their later years.

Another notable aspect of SECURE 2.0 is the mandatory automatic enrollment requirement for new 401(k) plans introduced after December 29, 2022. Employers are now required to automatically enroll employees at a rate between 3% and 10% of their salaries, with annual increases up to a cap of 15%.

The intent behind this is to ensure more consistent savings growth across the workforce and to prevent employees from missing out on valuable retirement funds.

2. New resources to locate lost retirement funds

A troubling trend in the U.S. reveals that millions of Americans have lost track of their retirement funds, often because of changes in employment. In fact, according to Capitalize, nearly 29 million forgotten 401(k) accounts exist, collectively holding an estimated $1.65 trillion in unclaimed assets.

To address this issue, SECURE 2.0 has initiated a new “lost and found” system for retirement savings. This federal initiative, set to launch by December 2024, will make it easier for individuals to search for and claim their old retirement accounts, providing a centralized tool for reconnecting people with their funds.

The Department of Labor’s online search tool for abandoned plans will supplement this system. This resource enables individuals to locate retirement accounts associated with companies that have since closed or undergone major changes.

Additionally, the Pension Benefit Guaranty Corporation (PBGC) offers a comprehensive database that helps people recover unclaimed pension benefits from single-employer plans. Together, these platforms create a streamlined approach to reclaiming retirement assets that may otherwise remain unutilized.

In addition to these federal resources, many states offer unclaimed property databases where individuals can search for lost retirement assets. These state-run databases provide an additional layer of accessibility, especially for those who have worked in multiple states or companies. Lawmakers and state treasurers are advocating for a unified national database to further simplify this process, ensuring that retirement funds find their way back to rightful owners.

As a reminder, the Social Security Administration will notify retirees about any unclaimed private pensions during the benefits application process. This automatic check could help retirees uncover forgotten funds that may supplement their Social Security benefits, thus enhancing their overall retirement security.

3. Important deadlines and withdrawal rules

For those planning to make the most of their retirement accounts, SECURE 2.0 introduces new deadlines and guidelines for contributions and withdrawals. These deadlines play a critical role in maximizing tax benefits and avoiding penalties.

Employees who wish to contribute to their 401(k) plans for 2024 must do so by December 31, 2024, to qualify for any available tax deferrals or catch-up opportunities. Individuals turning 50 by the end of the year are eligible for additional catch-up contributions, further boosting their savings potential.

For IRA accounts, the contribution deadline aligns with the tax filing date, meaning contributions must be made by April 15, 2025. If an individual exceeds the IRA contribution limit, they are required to withdraw the excess funds by the same deadline to avoid penalties. Failure to remove the excess contribution will result in a 6% excise tax each year until the funds are corrected.

The act also modifies rules around Required Minimum Distributions (RMDs), with an exemption for heirs who inherited IRAs exempt from RMDs between 2021 and 2024.

This measure aims to alleviate potential financial strain on beneficiaries while making the inheritance process smoother. It’s worth noting that account holders with multiple traditional IRAs must calculate RMDs separately for each account unless the account was inherited.

Missing the deadline for RMDs can trigger an excise tax, which can be costly for retirees. To avoid this, it’s important for retirees to stay mindful of these deadlines and understand their responsibilities concerning RMDs.

For those who may have forgotten about past accounts, consulting the Department of Labor’s online resources or the PBGC’s database can ensure that all accounts are accounted for and appropriately managed.

4. Best practices for managing retirement records

To fully benefit from these new provisions, it’s essential for retirees to maintain organized, up-to-date records of their retirement plans. Effective record-keeping can simplify the process of tracking down benefits, confirming eligibility, and reclaiming unclaimed funds.

Experts recommend that individuals retain documents such as retirement plan statements, vesting notices, and pay stubs. These records can help individuals verify their entitlement to benefits and serve as proof of any contributions made over the years.

Keeping track of retirement records is also important in establishing eligibility for unclaimed benefits, as employers or financial institutions may require specific documentation before releasing funds.

Additionally, individuals should maintain records of their Social Security benefit statements and earnings history, which can prove valuable if there are any discrepancies in retirement payouts or benefit calculations.

The Pension Rights Center, a nonprofit organization, offers guidance for individuals trying to locate lost retirement funds. This organization provides resources to help retirees navigate the claim process and connect with relevant agencies.

By combining federal and state resources, retirees can leverage these tools to ensure they have access to all their retirement funds and avoid missing out on valuable benefits.

What’s to come in the near future

As 2025 approaches, retirees should take time to familiarize themselves with the changes introduced by SECURE 2.0 and assess how these updates could impact their retirement strategy. For those looking to bolster their savings, the increased contribution limits offer a valuable opportunity.

By participating in new automatic enrollment plans, keeping track of deadlines, and leveraging available resources, retirees can strengthen their financial position for the years ahead.

Ultimately, the SECURE 2.0 Act’s provisions aim to increase retirement security, enabling individuals to approach retirement with greater confidence. By keeping track of employment records, understanding contribution options, and utilizing the resources available, retirees can safeguard their assets and optimize their retirement plans for a more comfortable future.