Will 401(k) Changes Impact Your Savings?

What's Changing in Your 401(k) in 2025—and What Does It Mean for You?

The new year ushered in exciting changes to 401(k) plans, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022. These changes, effective January 1, 2025, are designed to help Americans save more for retirement. As Christians, we are called to be good stewards of the resources God has given us ¹, and that includes planning for our financial future. Proverbs 21:20 reminds us, "Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it." ² Will 401(k) Changes Impact Your Savings? Let's explore the key changes to 401(k)s and what they mean for you.

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Higher Contribution Limits

One significant change is the increase in the 401(k) contribution limit. For 2025, if you're under 50, you can contribute up to $23,500, up from $23,000 in 2024³. This means you can shelter more of your income from taxes and potentially grow your retirement savings even faster. In addition, the combined employer and employee contribution limit has increased to $70,000³.

Catch-Up Contributions

If you're 50 or older, there's even more good news. The catch-up contribution limit for those ages 50 to 59 and 64 and older remains at $7,500³. But for those who reach ages 60 to 63 during 2025, the catch-up contribution limit has been raised to $11,250³. This provides a fantastic opportunity to boost your retirement savings as you approach retirement, especially for those who may have started saving later in life or experienced financial setbacks⁴.

Automatic Enrollment

To encourage greater participation in 401(k) plans, the new law now requires new 401(k) plans established after December 29, 2022, to automatically enroll eligible employees⁵. The initial automatic contribution rate must be at least 3% but no more than 10% of an employee's pay, and this rate must automatically increase annually until it reaches at least 10% but no more than 15%⁵. While employees can still opt out of automatic enrollment or change their contribution rate, this provision aims to make it easier for people to start saving for retirement, helping to overcome the inertia that often prevents people from taking this important step⁶.

Part-Time Workers

The recent legislation also expands 401(k) eligibility for part-time workers. Previously, employers could require part-time employees to work for three years before becoming eligible to participate in the company 401(k) plan⁵. Now, that requirement has been reduced to two years⁵. This change recognizes the valuable contributions of part-time workers and helps them build a more secure financial future. To be eligible, part-time employees must meet one of the following requirements: one year with at least 1,000 hours of service or two consecutive years with at least 500 hours of service⁷.

Roth Catch-Up Contributions for High Earners

Starting in 2025, high earners (those earning over $145,000 in FICA wages) are required to make catch-up contributions on an after-tax Roth basis⁸. This means that even if you would prefer to make pre-tax contributions, any catch-up contributions you make will be treated as Roth contributions.

Optional Roth Matching Contributions

Another change introduced by the new law allows employers to offer employees the option of receiving employer matching contributions on a Roth basis¹⁰. This can be a valuable option for those who anticipate being in a higher tax bracket in retirement.

New 10-Year Rule for Inherited IRAs

The new law also includes a new 10-year rule for inherited IRAs¹¹. This rule generally requires non-spouse beneficiaries to withdraw all funds from an inherited IRA within 10 years of the original owner's death.

Saver's Credit

The Saver's Credit provides a tax credit for retirement contributions made by low- and moderate-income workers¹². This credit can help offset some of the cost of saving for retirement and make it easier for those with lower incomes to build a nest egg.

IRA Deductions

The ability to deduct traditional IRA contributions is phased out for taxpayers with higher incomes¹². Similarly, there are income limits for contributing to Roth IRAs¹². These phase-out ranges are adjusted annually for inflation.

What These Changes Mean for Christians

As Christians, we are called to be wise stewards of our resources¹³. This includes planning for our retirement years, so we can continue to serve God and others without being a financial burden. Proverbs 21:20 tells us, "Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it." ² By taking advantage of these new 401(k) provisions, we can honor God with our finances and ensure we have the resources to live out our faith in retirement.

But it's important to remember that retirement is not simply about ceasing work¹⁴. As Christians, we are called to serve God throughout our lives. Retirement can be an opportunity to "retire to something" rather than "retire from something." ¹⁴ It can be a time for increased service to God and others, whether through volunteering, missions, or other forms of ministry.

Practical Advice for Retirement Planning

Here are some practical steps you can take to make the most of these changes:

• Contribute as much as you can. The higher contribution limits allow you to save more, so aim to increase your contributions if possible. Review your current contribution rate and increase it if possible, especially if you've received a raise or bonus.
• Take advantage of catch-up contributions. If you're 50 or older, make the most of the increased catch-up contribution limits to boost your savings.
• Consider contributing to a Roth 401(k). If your plan offers this option, especially if you anticipate being in a higher tax bracket in retirement, a Roth 401(k) can provide tax-free withdrawals in retirement.
• Talk to a Christian financial advisor. A financial advisor can help you create a retirement plan that aligns with your values and goals.
• Pray for guidance. Seek God's wisdom as you make financial decisions. Proverbs 3:5-6 says, "Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge him, and he will make straight your paths." ¹⁵
• Rebalance your portfolio periodically. To ensure it aligns with your risk tolerance and time horizon, rebalancing can help you maintain the desired asset allocation and manage risk.
• Educate yourself about different investment options. Choose those that best meet your needs and align with your investment goals and risk tolerance.

Conclusion

The changes to 401(k) plans in 2025 provide a great opportunity for Christians to be good stewards of their resources and plan for a secure retirement¹⁶. These changes, including higher contribution limits, increased catch-up contributions, automatic enrollment, and expanded eligibility for part-time workers, can help us build a more secure financial future. By taking advantage of these provisions, seeking God's guidance, and remembering that retirement can be a time for increased service, we can ensure we have the financial resources to continue serving Him and others in our later years. As we plan for retirement, let's be diligent, generous, and trust in God's provision, honoring Him with our finances and using our resources to further His kingdom.

Works cited

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