5 Breaks That Could Help Boost Your Retirement Savings

The start of a new year is the perfect time to evaluate your financial goals and set the stage for a secure future. With significant changes in the retirement savings landscape, 2025 offers new opportunities to bolster your nest egg, manage emergencies, and even tackle lingering student debt. Here, we explore five key changes and how they can help you maximize your savings and achieve financial stability.

1. Emergency Savings in Workplace Retirement Plans

Emergencies often strike when least expected, making it crucial to have a financial cushion. A recent provision under SECURE 2.0 allows employers to add an emergency savings account to defined contribution retirement plans. This can be a game-changer for employees, offering a dedicated space for short-term financial needs without undermining long-term retirement goals.

Here are the highlights of this new option:

• Designated as Roth Accounts: These accounts must be set up as Roth accounts and are available for non-highly compensated employees.
• Contribution Limits: Contributions are capped at $2,500 annually or lower, depending on employer rules. These contributions also count toward annual workplace retirement plan limits.
• Tax- and Penalty-Free Withdrawals: The first four withdrawals each year are tax- and penalty-free.
• Employer Match: Contributions may be eligible for an employer match, depending on plan terms.

This feature encourages employees to save for unexpected expenses, reducing reliance on high-interest debt like credit cards. While not all employers may offer this option, you can still establish an emergency fund outside of your retirement plan using alternatives like the Fidelity Goal Booster℠.

2. Higher Catch-Up Contributions for Older Workers

As retirement nears, older workers often look for ways to accelerate their savings. The good news? Catch-up contributions are getting a boost, thanks to inflation indexing and increased limits.

• IRA Catch-Up Contributions: Starting in 2024, the $1,000 catch-up contribution for individuals aged 50 and older will be indexed to inflation. This ensures contributions grow in line with the cost of living.
• Workplace Retirement Plans: Beginning January 1, 2025, workers aged 60 to 63 can contribute up to an additional $11,250 to their 401(k) plans, also indexed for inflation. For others aged 50-59 or 64 and older, the catch-up limit will remain at $7,500.

These increased limits allow older employees to supercharge their retirement savings during their peak earning years, taking full advantage of tax-advantaged growth.

3. No Required Minimum Distributions (RMDs) from Workplace Roth Plans

In a significant shift, RMDs are no longer required from workplace Roth accounts for individuals reaching RMD age in 2025 or later. This aligns workplace Roth plans with traditional Roth IRAs, offering more flexibility and tax-free growth opportunities.

• Benefits of RMD Elimination:
  • Savings can remain untouched, allowing for more compounding.
  • Tax-free withdrawals (subject to the 5-year aging rule and being over age 59½).

This change contrasts with traditional 401(k) accounts, where RMDs must begin at age 73, regardless of whether you need the funds. For those nearing retirement, this could be a pivotal factor in deciding between Roth and traditional account contributions.

4. Student Loan Matching Contributions

Student debt remains a significant burden for many, even those well into their careers. Recognizing this, a new provision allows employers to match student loan payments with contributions to workplace retirement plans.

• How It Works:
  • Employees can certify their student loan payments annually to qualify for the match.
  • The match applies only to higher education expenses.
  • Matching contributions follow standard vesting and plan rules.

This program enables employees to build retirement savings while repaying student loans, reducing the opportunity cost of addressing debt over saving for the future. If your employer offers this feature, it’s worth taking advantage of—even minimum loan payments could qualify you for the match.

5. 529-to-Roth IRA Transfers

If you have a 529 college savings plan and the beneficiary doesn’t plan to use the funds for education, a new rule allows unused funds to be rolled over into a Roth IRA for the beneficiary. This can be a strategic way to repurpose savings and set your loved ones up for retirement success.

• Key Rules:
  • A lifetime rollover limit of $35,000 applies.
  • The 529 account must have been open for at least 15 years.
  • Transfers are subject to annual Roth IRA contribution limits, which currently stand at $7,000.
  • Only contributions made at least five years before the transfer date are eligible.

This feature provides a way to ensure funds don’t go to waste while giving beneficiaries a head start on retirement savings. However, navigating the specific rules can be complex, so consulting a financial professional is advisable.

Putting It All Together

The changes outlined above offer a wealth of opportunities to improve your financial situation:

• Start an Emergency Fund: Whether through your workplace plan or an independent account, having accessible savings can provide peace of mind.
• Maximize Contributions: Take full advantage of increased catch-up limits, especially if you’re nearing retirement age.
• Consider Roth Options: The elimination of RMDs from workplace Roth plans makes them even more attractive for long-term savings.
• Leverage Student Loan Matching: If you’re repaying student loans, look for opportunities to build retirement savings simultaneously.
• Reallocate 529 Funds: Ensure unused college savings benefit your loved ones by rolling them into a Roth IRA.

As you plan for 2025 and beyond, remember that every financial decision—no matter how small—can contribute to a more secure retirement. Whether you’re focusing on growing your savings, meeting short-term goals, or tackling debt, these new provisions provide valuable tools to help you succeed.

Final Thoughts

Retirement planning can be complex, but the recent changes offer exciting opportunities to optimize your strategy. By staying informed and consulting with a financial professional, you can make the most of these updates and set yourself up for long-term success. Start the year strong by revisiting your goals and taking advantage of these new breaks to boost your retirement savings and secure your financial future.