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Leverage the 401(k) ‘super catch-up’
For 2025, investors can save more with higher 401(k) plan limits. Employees can defer $23,500 into 401(k) plans, up from $23,000 in 2024. The catch-up contribution limit is $7,500 for workers ages 50 and older.
But thanks to Secure 2.0, there’s a “super catch-up” for investors ages 60 to 63, said certified financial planner Michael Espinosa, president of TrueNorth Retirement Services in Salt Lake City.
The catch-up contribution for employees ages 60 to 63 jumps to $11,250 for 2025. That brings the total deferral limit to $34,750 for these workers.
“This could be huge” for deferring taxes in 2025, Espinosa said.
Some 15% of eligible participants made catch-up contributions in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly 5 million participants.
Avoid a penalty for inherited IRAs
An inherited individual retirement account could boost your nest egg. However, some heirs may face an IRS penalty for missed required withdrawals in 2025, experts say.
With more focus on shifting economic policy, “it’s easy to see how this one could get buried,” said CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.
Since 2020, certain inherited accounts must follow the “10-year rule,” meaning heirs must empty inherited IRAs by the 10th year after the original owner’s death. This applies to heirs who are not a spouse, minor child, disabled, or chronically ill, and certain trusts.
Starting in 2025, the IRS will enforce the penalty on heirs for missed required minimum distributions, or RMDs. The penalty is 25% of the amount that should have been withdrawn. But it’s possible to reduce that penalty if your RMD is “timely corrected” within two years, according to the IRS.
Heirs must take yearly withdrawals if the original IRA owner had reached their RMD age before death.
Social Security benefit change is ‘significant’
If you or your spouse work in public service and expect to receive a pension, new legislation could mean higher Social Security benefits in retirement.
Enacted by former President Joe Biden in January, the Social Security Fairness Act ended two provisions — the Windfall Elimination Provision and Government Pension Offset — that lowered benefits for certain government employees and their spouses.
“This change is significant for many retirees who had their benefits eliminated or reduced,” said CFP Scott Bishop, partner and managing director of Presidio Wealth Partners, based in Houston.
The Social Security Administration is working on the timeline for the new legislation and will update its website when more details are available.