Beginning in 2025, workers aged 60 to 63 will be eligible for a higher catch-up contribution limit for their 401(k) plans.
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| If you’re nearing retirement, these 2025 changes could affect your finances. |
As President Donald Trump begins his second term, many older investors are focused on how shifting policies may affect their finances.
However, some key changes for near-retirees were already implemented for 2025. These updates could have a significant impact on your finances and are easily overlooked, according to financial experts.
A recent survey from the American Savings Education Council, which polled over 2,000 U.S. adults in early 2024, found that nearly half of Americans aged 55 to 64 don’t feel prepared to retire by their target date. But experts suggest that planning around these 2025 changes could enhance retirement security. Here’s what older workers need to know.
Maximize the 401(k) ‘Super Catch-Up’
In 2025, the contribution limits for 401(k) plans have increased. Employees can now defer $23,500, up from $23,000 in 2024. The catch-up contribution limit for workers aged 50 and older remains $7,500.
Thanks to the Secure 2.0 Act, a new “super catch-up” is available for investors aged 60 to 63, said Michael Espinosa, certified financial planner and president of TrueNorth Retirement Services in Salt Lake City.
For those aged 60 to 63, the catch-up contribution increases to $11,250 in 2025, raising the total deferral limit to $34,750 for these workers.
“This could be a game-changer for deferring taxes in 2025,” Espinosa said.
According to Vanguard’s 2024 How America Saves report, 15% of eligible participants made catch-up contributions in 2023, based on data from 1,500 qualified plans and nearly 5 million participants.
Avoid Penalties for Inherited IRAs
Inheriting an individual retirement account (IRA) could help boost your nest egg. However, some heirs may face penalties for missed required withdrawals in 2025, experts warn.
“Given the focus on economic policy changes, this could easily be overlooked,” said Edward Jastrem, CFP and chief planning officer at Heritage Financial Services in Westwood, Massachusetts. Since 2020, certain inherited IRAs must follow the “10-year rule,” meaning heirs must withdraw all assets by the 10th year after the original owner's death. This rule applies to heirs who are not a spouse, minor child, disabled, chronically ill, or certain trusts.
Starting in 2025, the IRS will enforce penalties for missed required minimum distributions (RMDs). The penalty is 25% of the amount that should have been withdrawn. However, if the RMD is “timely corrected” within two years, the penalty can be reduced, according to the IRS.
Heirs must also take yearly withdrawals if the original IRA owner had already reached RMD age before their death.
Significant Social Security Benefit Change
If you or your spouse work in public service and are expecting a pension, new legislation could result in higher Social Security benefits.
In January, former President Joe Biden signed the Social Security Fairness Act into law, which eliminated two provisions — the Windfall Elimination Provision and Government Pension Offset — that previously reduced benefits for certain government employees and their spouses.
“This change is significant for retirees who saw their benefits reduced or eliminated,” said Scott Bishop, CFP, partner, and managing director of Presidio Wealth Partners in Houston.
The Social Security Administration is currently working on the timeline for the new legislation and will update its website with more details as they become available.
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