Changes coming to IRAs may help you save more for retirement, but you've got to be alert. It's always a good idea to check once a year to see if any new rules or changes are coming to Individual Retirement Accounts (IRAs). That means keeping track of modifications to existing rules, such as raising contribution limits or updating the requirements for withdrawing money from IRAs.
So, what's on the horizon? The SECURE 2.0 Act contained several changes to retirement plans that are being phased in over several years. These rules apply to traditional and Roth IRAs; familiarizing yourself with them can help you save more money for retirement and avoid penalties.
Here are four changes coming to IRAs in 2025:
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1. Super-sized catch-up contributions for people aged 60 to 63
Introduced by President George W. Bush in 2001, catch-up contributions allow employees age 50 and older to make additional deposits into their tax-advantaged retirement savings accounts.
The dollar amount is adjusted for inflation, though it may not change every year. The limit on catch-up contributions for IRAs for 2024, is $1,000 — the same as it was in 2023, bringing the total contribution limit to $8,000.
Effective for the 2025 tax year, active participants aged 60 through 63 can contribute the greater of $10,000 or 150% of the 2024 catch-up contribution limit that is indexed for inflation. In 2025, the total limit for IRA contributions for those aged 60 to 63 is $10,000.
2. SIMPLE IRAs and catch-up contributions for people aged 60 to 63
Annual employee deferrals to SIMPLE IRAs had a limit of $16,000 in 2024 but individuals aged 50 or older are allowed to make an additional “catch-up” contribution of $3,500, for a total of $19,500.
Beginning in 2025, there is an increase in the catch-up contribution limits for participants who have reached ages 60 through 63. The new catch-up contribution limit is increase to the greater of $5,000 or 150% of the regular age 50 catch-up contribution limit for SIMPLE IRA plans in 2025. Cost of living adjustments will begin in 2026.
3. New 10-year rule for inherited IRAs takes effect
In general, for most beneficiaries, the new rules are fairly simple. If you inherited an IRA from someone who died on or after January 1, 2020, you are required to withdraw all funds in the IRA no later than December 31 of the tenth full calendar year following the death of the individual from whom you inherited the IRA.
This rule did away with the ‘stretch IRA’ strategy that allowed owners of IRAs to pass along the assets in the account from one generation to the next while taking advantage of prolonged tax-deferred growth of the assets by using a prolonged distribution period.
However, there are exceptions and the following four types of beneficiaries can still utilize the ‘stretch IRA':
- Surviving spouses
- A child of the decedent under the age of 21
- A beneficiary who is not more than 10 years younger than the decedent
- An individual who is disabled or chronically ill
If you are one of the four types of beneficiaries described above, you must still withdraw funds from the inherited IRA over your lifetime beginning in the year following the decedent’s death. A surviving spouse can transfer the inherited funds from the IRA into your own IRA and is not required to start withdrawing funds from your own IRA until you reach your “required beginning date” (“RBD”).
The tax experts at Kiplinger can help you untangle the web of rules and regulations that govern the required minimum distributions (RMDs) from inherited IRAs. Read Inherited an IRA? Five Things Every Beneficiary Should Know and IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many for concise explanations of the new RMD rules.
4. Inherited IRA RMD penalties take effect
The IRS delayed the implementation of the final rules governing inherited IRA RMDs until 2025. However, the IRS has provided transitional relief for beneficiaries who did not take RMDs from their inherited IRAs in 2021 through 2024. Starting in 2025, a 25% penalty will be assessed for those who do not take their RMD.
Read IRS Delays IRA RMD Rules Again to understand which IRA accounts were exempt from the penalties and New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More to understand how to lower the penalty from 25% to 10%.
2024 year-end reminders
- Contribution limits and deadlines. You can make 2024 contributions to your Roth or traditional IRA until April 15, 2025.
- Excess contributions. If you exceed the 2024 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions). If you don't you must pay a 6% tax each year on the excess amounts left in your account.
- Required minimum distributions (RMDs). Remember that you face an excise tax on any RMD that you fail to take on time. You must calculate the RMD separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs.
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