The new year is a great time to get your financial house in order. And there are some big changes in the savings landscape that could make it easier for you to save for retirement or an emergency and pay off student debt.
Among the changes:
- Defined contribution retirement plans can add an emergency savings account giving participants penalty-free access to funds.
- Older workers can contribute more to their 401(k)s and other qualified retirement accounts.
- Required minimum distributions (RMDs) from workplace Roth 401(k)s are a thing of the past.
- Employers can reward student loan payments by employees with matching contributions into their retirement accounts.
- And rolling over unused funds in a 529 college savings plan to a Roth IRA is easier.
Taken together, these adjustments can help with retirement planning and provide a boost to your savings. Here are the details.
Emergency savings in a workplace plan
Maybe your emergency savings account needs some attention, particularly after years of high inflation and price increases.
One of the recent changes, a result of SECURE 2.0, passed in 2022, lets employers add an emergency savings account to defined contribution retirement plans. Here's how it works:
- The accounts must be designated as Roth accounts, and they must also be available for non-highly compensated employees.
- Contributions are capped at an annual $2,500 (but could potentially be lower as determined by the employer).
- Contributions to these types of accounts count toward annual workplace retirement plan contribution limits.
- The first 4 withdrawals in a year would be tax- and penalty-free, and contributions could be eligible for an employer match, depending on plan rules.
Emergency saving funds could encourage people to save for unexpected expenses, as well as for short-term savings goals. That said, including an emergency savings account within a retirement plan is at the discretion of employers, and your plan administrator may offer alternative solutions.
Starting an emergency savings doesn't have to happen within the retirement plan either. Given the rules and restrictions, you may want to explore an out-of-plan option, such as Fidelity Goal Booster℠.
Higher catch-up contributions for older workers
For the 2024 tax year, catch-up contributions to IRAs were indexed to inflation for the first time.
Currently, someone age 50 or older can make a catch-up contribution of $1,000 in addition to the standard $7,000 contribution to an IRA (either traditional or Roth). Indexing can help ensure catch-up contribution amounts will increase with the cost of living.
On January 1, 2025, catch-up limits for workplace retirement plans like 401(k)s jumped to an inflation-adjusted limit of $11,250, but only for individuals ages 60 through 63. This new catch-up amount is also to be indexed for inflation. The higher limit for workers between the ages of 60 and 63 went into effect in 2024 as a result of SECURE 2.0.
In 2025, individuals can contribute $23,500 to a workplace retirement plan with a catch-up contribution of $7,500 for employees between the ages of 50 and 59 and those over 64.
Interested in opening an IRA? Explore your options.
No required minimum distributions (RMDs) from a workplace Roth
While RMDs aren’t required for Roth IRAs, until 2024 you had to take required minimum distributions from a workplace Roth plan once you’d retired and reached the age at which the Internal Revenue Service (IRS) mandates taking withdrawals from qualified retirement accounts.
Now, you don’t have to take RMDs from a workplace Roth plan if you reached RMD age in 2025 or later, which can potentially give your savings there more time to continue growing, as they would in a non-workplace Roth account. Assuming the 5-year aging rule has been met and you’re 59½ and older, withdrawals are tax-free when made. Note: You may still owe an RMD by April 1, 2024, if you reached RMD age last year and did not yet take your first RMD.
That’s a big difference from a traditional 401(k) or other workplace plan, where savings can accumulate tax-deferred, but RMDs must begin once you’ve retired and have reached age 73 or older.
Learn more about tax-savvy withdrawals in retirement in Fidelity Viewpoints®.
Student loan matching in a workplace plan
Tens of millions of people have student debt, including a substantial number who are 50 and over.
In 2024, employers were able to begin adding matching contributions for student loan payments to 401(k) or other workplace retirement plans. With student loan repayments kicking in after a multi-year pause on repayments due to the pandemic, that could be a great incentive for workers still paying off their loans. Only higher education expenses are eligible, and employees will have to certify annually their student loan payments to qualify for the match. Even if just making minimum payments, you still may be eligible for a 401(k) match. Availability may differ by plan and other plan vesting and matching rules would apply.
529-to-Roth IRA transfers
If there’s a beneficiary of a 529 in your life, such as a child or grandchild, and they don’t plan to use funds in that account for educational purposes, you may be able to transfer those dollars to a Roth IRA, which could help boost their retirement savings.
A lifetime limit of $35,000 can be transferred to a Roth IRA established in the name of the 529 beneficiary. There are several rules:
- The 529 account must have been maintained for the designated beneficiary for at least 15 years, subject to annual Roth IRA contribution limits.
- Transfer amounts must also come from 529 contributions made 5 years or more prior to the 529-to-Roth IRA transfer date.1
- Due to annual contribution limits ($7,000 annually for 2025), this strategy could take multiple years to fully transfer 529 plan assets. Additionally, the annual contribution limit and Roth earned income limits used would be the 529 beneficiary's, not the parent's, and funds may only be converted to Roth IRAs, not to traditional IRAs.
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It can make sense to consult with a tax or financial professional to navigate this still-new process.
Find out more about transferring amounts from a 529 to a Roth IRA in Fidelity Viewpoints®.
Whether your plans for 2025 include beefing up your retirement savings, meeting shorter-term financial goals, or paying off the remainder of your student loans, remember it’s always best to consult with a financial or tax professional to discuss your specific circumstances. With a solid financial plan in place, you can begin 2025 with confidence.