Changes in 401(k) Plan

If you’re eyeing retirement or just starting to think about your financial future, the SECURE 2.0 Act is about to bring some significant shifts to 401(k) plans. These changes, set to kick in by 2025, aim to make retirement saving easier for everyone—whether you're a full-time worker, part-time hustler, or haven’t even dipped your toes into a 401(k) yet.

Passed by Congress in late 2022, the SECURE 2.0 Act is an enhancement of the original 2019 SECURE Act (Setting Every Community Up for Retirement Enhancement). With over 90 retirement-related updates, this legislation continues to roll out new rules through 2027. Here are three changes in 401(k) plans you should know about for 2025.

Major Changes to 401(k) Plans Coming in 2025 under the SECURE 2.0 Act


1. Automatic Enrollment for New 401(k) Plans


Gone are the days of manually signing up for a 401(k) when you become eligible. Starting in 2025, all new 401(k) plans created after December 29, 2022, will automatically enroll eligible employees—unless they choose to opt out. This move is designed to boost participation and help workers build their nest eggs effortlessly.

Who’s exempt? If you work for a small business with fewer than 10 employees, a company that’s under three years old, or government/church-based employers, automatic enrollment won’t apply to you.

Employers can start contributions between 3% and 10% of your salary, with the common choice being 6%. The contribution rate will automatically increase by 1% each year unless you specify otherwise. You might see your contribution go up annually until it hits a cap of 10% to 15%—depending on your employer's setup.

2. Faster Eligibility for Part-Time Workers


Currently, part-time workers have to put in 1,000 hours within a year or 500 hours for three consecutive years to qualify for a 401(k) plan through their employer. Starting in 2025, that three-year requirement will shrink to two years. This makes it faster and easier for part-time employees to gain access to employer-sponsored retirement plans.

This change can be a game-changer if you’re juggling multiple part-time gigs instead of one full-time job. But remember: if you have more than one 401(k), your total contributions across all plans must stay within the annual limit. For example, in 2024, the 401(k) contribution cap is $23,000, so if you contribute $15,000 to one plan, you can only put $8,000 into another.

3. Enhanced Catch-Up Contributions for Older Workers


If you’re over 50, you’re probably familiar with the catch-up contribution option, which allows you to save more as you approach retirement. According to an AARP survey, 61% of adults over 50 worry about running out of retirement savings, and 20% haven’t started saving at all. The SECURE 2.0 Act is here to ease that anxiety.

The catch-up contribution limit for those 50 and older is currently set at $7,500 for 2024. But beginning in 2025, workers aged 60 to 63 will get an even higher limit. You’ll be able to contribute up to $10,000 or 50% more than the regular catch-up limit—whichever is greater. If the catch-up remains at $7,500 in 2025, that means you can set aside up to $11,250.

This increased limit will be adjusted for inflation after 2025, so it keeps pace with the rising cost of living, ensuring you’re able to save even more effectively as retirement nears.

SECURE 2.0 Act: Beyond 401(k) Plans


These changes are just the tip of the iceberg. The SECURE 2.0 Act isn’t only about contributions; it’s also changing rules around withdrawals and other aspects of various retirement plans. No matter what type of retirement savings you have, getting familiar with the updates can help you make the most out of your savings strategy. The better you understand the tweaks, the better you can tailor your financial planning to secure a comfortable future.

With these new provisions, saving for retirement is getting a lot more streamlined, particularly for those who’ve felt they’re lagging behind or weren’t fully in the loop. Whether you're just starting out or planning the final stretch, 2025 is shaping up to be a pivotal year for retirement planning.