The SECURE 2.0 Act has introduced several key changes to Individual Retirement Accounts (IRAs) that will benefit those saving for retirement. It is imperative to comprehend these updates in order to optimize your contributions and to make well-informed decisions regarding your retirement savings, regardless of whether you possess a Traditional IRA or a Roth IRA.
With many of these changes rolling out gradually, 2025 will see significant updates that retirees and savers need to be aware of.
Bigger Catch-Up Contributions for People Aged 60 to 63
One of the most notable changes is the increase in catch-up contributions for individuals aged 60 to 63. Currently, those over the age of 50 can make additional contributions to their IRAs, capped at $1,000 in 2024. However, starting in 2025, those aged 60 to 63 can contribute up to $10,000 or 150% of the current catch-up limit (indexed for inflation).
| Year | IRA Contribution Limit | Catch-Up Contribution Limit | Total Contribution (for ages 60-63) |
|---|
| 2024 | $7,000 | $1,000 | $8,000 |
| 2025 | $7,000 (estimate) | $10,000 or 150% of 2024 limit | $10,000 |
This change is particularly beneficial for those nearing retirement age who may want to save more as they approach the end of their careers.
SIMPLE IRAs and Catch-Up Contributions for People Aged 60 to 63
Like Traditional and Roth IRAs, SIMPLE IRAs will also see an increase in catch-up contributions for those aged 60 to 63. The current deferral limit is $16,000, with a catch-up limit of $3,500 for individuals over 50.
In 2025, this catch-up contribution will increase to the larger of $5,000 or 150% of the regular catch-up limit, helping those in this age range save more for retirement.
New 10-Year Rule for Inherited IRAs
If you have inherited an IRA from an individual who passed away on or after January 1, 2020, please be advised that a new 10-year rule is now in effect. Beneficiaries must withdraw all funds from IRA by December 31 of the tenth year following the original owner’s death.
This change eliminates the previous stretch IRA strategy, which allowed beneficiaries to spread distributions over their lifetime.
However, some beneficiaries are exempt from this rule, including surviving spouses, minor children of the original owner, beneficiaries within 10 years of the decedent’s age, and individuals with disabilities or chronic illnesses.
Inherited IRA RMD Penalties Take Effect
Another important update is the reinstatement of penalties for not taking required minimum distributions from inherited IRAs. Although the IRS provided leniency for missed RMDs between 2021 and 2024, this grace period ends in 2025.
Starting then, a 25% penalty will be applied to those who fail to take their required distributions, along with any applicable taxes.
The SECURE 2.0 Act brings several positive changes to IRAs, helping individuals save more as they approach retirement and simplifying some rules around inherited IRAs. Understanding these updates will allow you to take full advantage of the new limits and avoid potential penalties.
Stay updated and talk to a financial advisor if needed to make sure you are saving as much as possible for retirement.
FAQs
Starting in 2025, those aged 60 to 63 can contribute up to $10,000 or 150% of the current catch-up contribution limit.
Beneficiaries of an inherited IRA must withdraw all funds by the end of the tenth year after the original owner’s death.
Yes, exceptions apply for surviving spouses, minor children, beneficiaries within 10 years of the decedent’s age, and individuals with disabilities or chronic illnesses.
Starting in 2025, the penalty for missing RMDs will be 25%, along with taxes on the amount not withdrawn.
Yes, the catch-up limit for SIMPLE IRAs will increase to $5,000 or 150% of the current catch-up limit, whichever is higher.
