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Participating in a 401(k) plan where you work is a smart way to invest for retirement. Plus, your employer may match some or all of the money you contribute. In 2025 the rules for 401(k)s will undergo several significant changes as a result of the federal SECURE 2.0 Act of 2022.
Here’s the lowdown on five big changes to 401(k) plans in 2025 and how you can take full advantage of them.
Key Takeaways
- Maximum contribution limits for 401(k) plans are rising by $500 for many workers in 2025.
- Workers age 50 and older can make additional catch-up contributions, with those in the 60 to 63 age group eligible for even higher limits.
- Many employers will now be required to enroll their workers automatically in their 401(k) plan, although workers can still opt out.
- More part-time workers will be eligible for 401(k)s, with the work requirement as either one year with at least 1000 hours of service or two consecutive years with at least 500 hours of service. (The latter requirement dropped from three years to two years.)
- The government has also clarified the 10-year rule for non-spouse beneficiaries who inherit a 401(k).
1. Higher Contribution Limits
The maximum amount that workers can contribute to their 401(k) plans tends to rise each year, as it’s adjusted for inflation. (For 2025, however, the contribution limit for IRAs didn’t increase. It’s still $7,000, or $8,000 if you’re 50 or older.) For 2025, the most you can contribute to a 401(k) if you’re under 50 is $23,500. That’s up from $23,000 in 2024.
Workers must earn at least that much to contribute that much money, because contributions each year are limited to 100% of employee compensation.
Workers can have both a traditional 401(k) account and a designated Roth 401(k) account if their employer offers a Roth option. However, the limit applies to both accounts combined.
2. Higher Catch-Up Contributions for Some Older Workers
Workers age 50 and older can make additional catch-up contributions. For both 2024 and 2025, the maximum catch-up contribution is $7,500 for most workers age 50 and older. In other words, a worker who is age 50 or older who earns at least $31,000 in 2025 is eligible to contribute that much to their 401(k) plan ($23,500 + $7,500).
In addition, as a result of the SECURE 2.0 Act, workers age 60, 61, 62, and 63 will now be eligible to make catch-up contributions of up to $11,250. For 2025, that would mean a maximum of $34,750 ($23,500 + $11,250). Again, they must earn at least that much to contribute that much.
For workers ages 60 to 63 who are behind on their retirement savings—and can afford to have more money taken out of their paychecks—this could be an opportunity to do some catching up.
3. Automatic 401(k) Enrollment
Since 1998, the government has allowed employers to automatically enroll new employees in their 401(k) plans. Workers who didn’t want to participate could opt-out by taking no action to enroll.
Because of a provision in the SECURE 2.0 Act, starting in 2025, most 401(k) plans established after December 28, 2022, will be required to automatically enroll new employees unless they proactively opt out of the program.
If you don’t take steps to opt-out, the contribution percentage must be at least 3% of your salary but not more than 10% in the first year. After that, it must increase by one percentage point per year until it gets to at least 10% but not more than 15%. If you were an existing employee, you are legacied in at your current contribution levels.
There are various exceptions, including one for companies that have been in business for less than three years or have 10 or fewer employees.
As a result of the law, anyone who begins work with an employer that doesn’t qualify for an exception may find themselves contributing to a 401(k) starting in 2025.
An Ariel/Aon-Hewitt study found that automatic enrollment in a 401(k) leads to “[t]he most dramatic increases in enrollment rates are among younger, lower-paid employees, and the racial gap in participation rates is nearly eliminated among employees subject to auto-enrollment.”
4. Quicker Eligibility for Part-Time Workers
The SECURE 2.0 Act also shortened the service requirement for some part-time workers to become eligible to participate in their employer’s 401(k) plan.
The rule applies to part-time employees who work at least 500 (but less than 1000) hours for an employer in a given year. As of 2025, they are eligible for enrollment after two consecutive years of service, rather than three years (as it was before the rule changed). The rule for part-time employees who work 1000 or more hours per year is the same: they are eligible for enrollment after one year.
5. New 10-Year Rule
Another change for 2025 will affect many people who inherit someone else’s 401(k).
Since the passage of the SECURE Act, non-spouses who inherit a 401(k) after 2019 typically must withdraw the money within 10 years (the 10-year rule). This was previously interpreted to mean that the beneficiary didn’t have to take money out every year but could delay withdrawals until the end of the 10 years if they wanted to. In that way, they could postpone the tax hit and enjoy tax-sheltered growth for all that time.
In 2024, however, the Internal Revenue Service (IRS) clarified that, in addition to following the 10-year rule, such accounts are now subject to annual required minimum distributions (RMDs) if the person dies after their required beginning date—that is, the date on which they would have had to start taking RMDs. Under the clarified rules, the beneficiary must take RMDs based on their life expectancy.
Beneficiaries subject to this newly clarified rule must begin taking RMDs in 2025 or face penalties. Fortunately, the IRS is waiving penalties for the years 2021 through 2024.
What Are the 401(k) Contribution Limits for 2025?
Contribution limits differ by age. Older workers are eligible for additional catch-up contributions. For 2025, the annual limits are:
- Workers under 50: $23,500
- Workers age 50 or older but not 60, 61, 62, or 63: $31,000
- Workers aged 60, 61, 62, or 63: $34,750
How Many People Are Enrolled in 401(k) Plans?
The Investment Company Institute, a financial services industry trade group, estimates that there were about 70 million active 401(k) plan participants, plus at the end of 2023. There were also millions more former employees and retirees with accounts,
What Is the Average 401(k) Balance by Age?
Fidelity Investments, which manages the 401(k) plans of some 24 million workers, found that the average 401(k) balance overall as of Q3 2024 was $132,300.
Broken down by generation, the average balances were:
- Baby boomers (born 1946-1964): $250,900
- Gen X (born 1965-1980): $191,100
- Millennials (born 1981-1996): $66,500
- Gen Z (born 1997-2012): $13,000
The Bottom Line
The rules for 401(k) plans can change each year, so if you want to get the most from your plan, it’s a good idea to review it periodically. The year 2025, in particular, is bringing some important changes to maximum contributions, catch-up contributions, and inherited retirement accounts, among others. If you have any questions about what to do this year, consulting a financial planner or other knowledgeable advisor could be worth the investment.
