The retirement savings landscape is changing, and there are significant changes coming to 401(k) plans in 2025. These changes are driven by the Secure 2.0 Act, which aims to improve retirement savings for American workers.
Many workers feel unprepared for retirement, with around 40% believing they are behind in their planning due to factors like debt, insufficient income, and delayed savings efforts.
In 2025, the contribution limit for employees deferring into 401(k) plans will increase to $23,500, up from $23,000 in 2024. Workers aged 50 and older will also be allowed to make catch-up contributions of up to $7,500 on top of this limit. Older workers aged 60 to 63 will see their catch-up contribution limit rise to $11,250, a 14% increase. This means that these employees could potentially save a total of $34,750 in 2025.
Another important change is the increased access to 401(k) and 403(b) plans for part-time workers. Starting in 2024, part-time employees who have worked at least 500 hours annually for three consecutive years were eligible for plan access. In 2025, this threshold will be reduced to two consecutive years, allowing more long-term part-time workers to qualify for retirement savings plans.
Automatic enrollment and escalation features will also be introduced to increase participation rates in retirement savings plans. Starting in 2025, eligible employees will be automatically enrolled in these plans with a minimum deferral rate of 3%. While these features are beneficial, financial advisors recommend a savings rate of around 15%, and many plans currently cap automatic escalations at 10% or less of annual pay.
These changes aim to address the retirement savings crisis facing many Americans and provide more support for individuals seeking to secure their financial futures. Workers and employers will need to stay informed about the evolving retirement landscape and the opportunities it presents.