As 2025 begins, the cost-of-living increases for retirement plans and IRAs will become effective, as will new provisions from SECURE Act 2.0 and other changes. These changes include rules on required minimum distributions (RMD) on inherited IRAs, catch-up contribution limits for older employees, and auto-enrollment requirements.
Required minimum distributions on inherited IRAs resume in 2025
A new IRS rule proposed in 2022 that required certain beneficiaries (those who inherited an IRA of someone who has reached their required beginning date for RMDs) of inherited IRAs to empty the inherited account within 10 years caused confusion for some beneficiaries and caused the IRS to waive RMDs from 2021-2024.
The IRS's temporary relief will end in 2025, and those beneficiaries subject to the 10-year rule must continue taking RMDs.
New opportunities for older employees and 2025 increased plan limits
SECURE 2.0 provides a “super catch-up” for certain older employees in 401(k), 403(b), and governmental 457(b) plans age 60, 61, 62, or 63 on the last day of the year. For 2025, the catch-up amount is $11,250. The super catch-up ($5,250 for 2025) also applies to age 60-63 SIMPLE IRA participants. This means that employees in SIMPLE plans will be subject to one of three different catch-up limits, depending on their age and the size of their employer.
Auto enrollment for new 401(k) and 403(b) plans and inclusion for part-time workers
Any 401(k) and 403(b) plans established after December 29, 2022, must include an automatic enrollment feature. This rule excludes new employers who have been in business less than three years, smaller employers with 10 or fewer employees, church-sponsored plans, governmental plans, and SIMPLE plans.
The rule has an opt-out requirement that states employees must make elective deferrals unless they opt out of the plan. Employers can set the deferral rate for those who don’t opt out to at least three percent but no more than 10 percent of pay. For each year following, the rate must be increased by one percent until it reaches at least 10 percent but no more than 15 percent of pay.
New rules also provide long-term part-time workers the opportunity to be enrolled in a 401(k) plan. Before the SECURE Act, employers could exclude part-timers if they didn’t work at least 1,000 hours in a 12-month period or were under the age of 21. The SECURE Act required plans to permit any workers with at least 500 hours in three consecutive years and aged 21 by the end of that three-year period to make elective deferrals. SECURE 2.0 maintained the age-21 requirement but shortened the consecutive period from three to two (for those hired after 2023). These part-time rules apply only to elective deferrals, not employer contributions.
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MATTHEW MUNN
Partner, UHY LLPManaging Director, UHY Advisors
Matthew Munn joined the firm in 1995 and has decades of experience in public accounting. He is an active member of the Tax Department and leader of the Retirement Plan and Employee Benefits Services Group. He’s also a leading member of the firm’s National Professional Employer Organizations Practice and National Transaction Services Group.