Retirement accounts are one of the best tools for building wealth.
In fact, there are now close to 500,000 401(k) millionaires in the United States.
Investopedia reports that both 401(k) and IRA millionaires have hit a new record.
Whether or not you are currently contributing to a retirement account (and you better be if you are reading this!), there are some key changes coming in 2025 that you need to know about.
Oh and if you are curious about whether you should be contributing to a Roth or a Traditional retirement account, then you need to watch my latest video. If this is your first time reading the words "Roth" and "Traditional" in the same sentence...you DEFINITELY need to watch it...let's dive in:
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1. 2025 Contribution Limits
In 2024, you are allowed to contribute $23,000 to your 401k, and $7,000 to an IRA ($8,000 if you are over 50).
Let's put this into perspective: if you contribute $7,000 per year, or $19.19 per day, into a Roth IRA for 40 years, you would likely end with $1,958,467.
The best part? That two million would be completely tax-free.
If you want to know how I got that number and how you can calculate it based on your own situation, check out the video I linked above.
In 2025, the 401(k) contribution will increase to $23,500, while the $7,000 contribution will remain the same.
PRO TIP: You have until April 15th to contribute to and IRA and it will still count for the previous year.
2. Mandatory Automatic Enrollment
According to Vanguard, 83% of employees participate in their 401(k) plan.
In my opinion, that is 17% too low.
To help drive adoption, all 401(k) plans established after 2022 will be required to enforce automatic enrollment.
This is important, especially if you work at a startup or may work for one in the future, as they typically have newer 401(k) plans.
The way this works is 3-10% of your salary (depending on the plan) will go to your 401(k). Additionally, this will increase 1% per year until you reach at least 10%.
You can opt out of course, but if you don't know about, you may wind up "over" contributing without even knowing.
And contributing is not enough, you'll also need to know how to pick the right investments in your 401(k). Everyone's are different and they always have confusing names. I'll make a future video and post on that, so make sure to stay tuned to the YouTube channel for the latest on how to pick the best investments in your 401(k).
3. Retirement Account Database
Have you ever wondered if you have money floating around in a previous employer's 401(k)?
Like many others early in their career, I switched jobs every 6 to 24 months.
At one point, I realized I must have some cash in a 401(k) somewhere. After a ton of calling and emailing and paperwork, I found out I had a few thousand dollars!
Luckily, this will become much easier in the future with the creation of a "lost and found" database where investors can check to see if they have leftover retirement funds waiting to be reunited with their owners.
Unfortunately, it looks like this database may not be ready by the start of 2025, but hopefully it comes online soon!
4. Higher Catchup Contributions
While most of my audience is in the 18-45 age range, you should still be aware of this change.
You may have parents or friends or family that this applies to after all.
Investors over 50 are allowed to make "catchup" contributions, though the limits are typically not much higher than the standard contribution limit.
But in 2025, that is changing for investors aged 60-63. Their catchup contribution limit will be increased from $7,500 to a whopping $11,250.
5. Part-Time Employee Participation
Starting in 2025, elegilibility for part-time employees to participate in 401(k) plans will be greatly expanded.
This means that anyone working part-time who completes 500 hours of service in the span of 2 years and are over the age of 21 will be classified as a Long Term Part Time employee (LTPT).
As someone who worked part-time for years, I would have really appreciated this when I was working in high school and college years.
Next Steps
If you are looking to learn more about investing for retirement, check out this video where I walk through why Roth IRAs are typically better for Traditional IRAs. I also feature a retirement investing spreadsheet which you can download and tailor to your own situation here.
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