During our twelve years of Wealth Radio on KLBJ, we’ve worked with many successful retirees and seen a lot. In this article, we’ll go over some recent questions from our audience and focus on big changes in 2025. When it comes to your Social Security, IRA, 401Ks, and more, there are big things on the horizon. You’ll want to know about these changes so you can adjust your savings plan to help maximize your savings and support success in retirement. Keep reading to see what changes to look out for in the year to come and other useful pieces of advice!
Contents
- List of 2025 Changes in Retirement
- 1. Secure Act 2.0: Catch-Up Contributions
- 2. Secure Act 2.0: 401Ks for Part-Time Workers
- 3. No Tax on Social Security?
- 4. The 10-Year Rule for Inherited IRAs
- 5. Required Minimum Distribution (RMD) Changes
- 6. Can I Gift my RMD in a Roth IRA to Avoid Income Tax?
- 7. Cost of Living Adjustment on Social Security
- 8. Max Earnings & Max Social Security Increased
- 9. What to Do with a 529 When a Kid Is Ready to Go to College?
- 10. What is the Social Security Earnings Cap?
- 11. Can You Claim an Ex-Spouse’s Social Security Benefit?
- 12. Does Voluntary Suspension Work for a Single Person?
- Thank You for 12 Years!
List of 2025 Changes in Retirement
1. Secure Act 2.0: Catch-Up Contributions
If you’ve read a lot of our articles, you’ve probably read about the Secure Act 2.0, which passed in 2022. There were some provisions that went into effect at that time, but there are also updates going into effect in 2025. In fact, CNBC did a poll recently and found that approximately 4 out of 10 American workers feel they are behind on their retirement and savings plans, primarily due to debt, low income, or starting late. Even if you are feeling behind or you’re a great saver, the Secure Act 2.0 may help you put more money in your 401K.
In 2025, as an employee you can defer up to $23,500 from your paycheck in your 401K plan. That’s $500 up from $23,000 in 2024. If you’re over 50, you can make a catch-up contribution of $7,500 on top of the $23,500 limit. Although we’ve been used to having a max contribution you can put in, if you turn 50 or are above 50 years old, you can make this catch-up contribution. In 2025, the allowable catch-up contribution has also increased to $11,250, which is almost a 14% increase, if you are aged 60 to 63. That is a major change in 2025, which allows you to contribute up to $11,250 for anyone aged 60 to 63.
We’ve never seen this much money be able to go into a general 401K, unless it’s been some sort of after-tax contribution method. This is a deductible contribution that could be made, which may help reduce your taxable income. If you’re tax-savvy or want to get the most out of your Roth 401K, you can now get even more money into your 401K account. We’re always a proponent of taking control of your taxes and retirement, and your Roth IRA is one of the most effective tools to support that.
2. Secure Act 2.0: 401Ks for Part-Time Workers
If you’re a part-time employee, you should pay attention to something else in the Secure Act 2.0. This could be applicable to people heading towards retirement, since sometimes we see families or individuals who want to slow down on work. During this time, many people start to go part-time or take on smaller gigs, such as consulting, instead of working full-time. The Secure Act 2.0 really boosted access to 401Ks and 403Bs for certain part-time workers. Now, employers are required to extend plan access to part-time employees who worked at least 500 hours annually for three consecutive years. As of 2025, that threshold has dropped to only two consecutive years.
For anyone who has been working part-time for a while, you may newly qualify for 401K eligibility and you should be aware. If you’re working part-time and you’ve hit that two-year threshold with those minimum hours, you should be able to qualify for that 401K plan in 2025. Another provision that has changed is auto-enrollment for certain 401K plans. In short, starting in 2025, most 401Ks and 403B plans established after December 28, 2022 must include automatic enrollment of eligible employees in the plan with a minimum 3% employee deferral rate. This means more people are going to be joining just because of this. It’s going to give more people access to 401Ks and require employers to offer access to 401Ks. That’s great for the savings game! So keep an eye out for those big changes in the 401K space.
One of our followers sent in a question around President Trump’s plans for no tax on Social Security and whether we believe that will happen. In addition to no tax on Social Security, there is a lot on the Republican agenda. One big thing during the election was extending tax cuts that were put into place by President Trump in 2017. However, we all know that Social Security has some issues. If there are no changes between now and 2034, they will have to reduce Social Security payments by 23-24% to keep the program solvent. Obviously, this means there may have to be some changes. So, while we are not sure whether the administration will eliminate taxes on Social Security, we can offer advice on the best ways to take Social Security.
As we’ve mentioned countless times, the best time to take Social Security depends on your situation, expected longevity, and net worth. While for many it makes sense to defer taking benefits on Social Security, for some families it may make sense to take it as early as possible. Make sure that you evaluate your own situation to define your claiming strategy. However, if no tax on Social Security is to pass, it could make sense for many people to take Social Security as early as possible.
As always, we recommend that you run the numbers, but it may even make sense to collect Social Security while there are no taxes and defer later, if the policies change. Now, you can choose to claim early and turn off your benefits once you reach full retirement age. This means you could potentially take Social Security for a while tax-free and then turn it off to get deferred credits later. We’ll be keeping our ears to the ground on this one and reporting back any relevant news.
In addition to the potential for a future with tax-free Social Security, there are some changes coming to Social Security we want to highlight. We often say Social Security is your greatest asset, and it’s true. You want to maximize it and get the best benefit out of it. If you’re eager to dive into how to do this, you can go to wealthradio.com and download a free copy of our updated Social Security decision guide. That guide has over fifteen pages discussing your claiming strategy, as well as some of the best ways to get the most out of Social Security.
4. The 10-Year Rule for Inherited IRAs
A few years back, we had the passage of the new 10-year rule for inherited IRAs. We often refer to this rule since many of our readers are either approaching retirement or potentially in line to receive an inheritance. This new rule may impact you on both sides of the equation.
First, if you’ve inherited an IRA after January 2020, you must distribute or withdraw those funds within 10 years. It used to be that you could just inherit an account, take a nominal required distribution, and keep the bulk of it invested. That is no longer the case. It’s an important thing to be aware of if you inherit an IRA. There are a few exceptions to this rule: if you are a spouse, a minor under 21 years of age, less than 10 years younger than the person who left it to you, or if you’re chronically ill or disabled. That means, many of you inheriting an IRA will likely need to withdraw it within 10 years. If you fail to take the money out, you may face penalties and other consequences.
On the other side, if you’re planning to leave IRAs to heirs, you can strategize how they inherit the account. For example, you may leave a portion of your IRA to one person that has to take it over 10 years and leave another portion to someone who is an exception to the 10-year rule, perhaps a spouse, minor child, or someone less than 10 years younger than you (potentially a sibling). By splitting your IRA this way, you can inject some strategy.
5. Required Minimum Distribution (RMD) Changes
Another thing you should be aware of are the changes to the RMD requirements. Every day, we are surprised by the number of people who still believe they have to take their RMD at age 70 ½. While that used to be the case, with the passage of the Secure Act 2.0, that age has been pushed out. That means, if you’re born before 1960, your RMD age is going to be 73. If you were born after 1960, it’s been pushed out all the way to age 75.
While that may not sound like a big deal, it’s very exciting for us at REAP Financial because it gives us more time to get things rearranged. We now have more time to convert accounts to Roth—potentially 3 to 5 more years before your RMDs begin. This is extremely important, since many successful retirees have large RMDs, which may increase your income enough to push you into a higher tax bracket. These changes give you time, so consider using it.
6. Can I Gift my RMD in a Roth IRA to Avoid Income Tax?
We are so glad to have gotten this question, since it’s a big misconception. The RMD is something that is required on a 401K, traditional IRA, or SEP IRA. The government allows you to defer all this money and then they want to collect taxes by requiring distributions. They require you to take RMDs so they can tax that income.
Those RMDs are based on the aggregate balance of the accounts and then your age, so you’re generally going to see the RMD increase based on those factors. Your RMD must be distributed. It cannot be transferred or converted into a Roth. You cannot convert a taxable RMD into a Roth; it must be distributed to you first, and then you can invest that amount. Many people believe you can take the RMD and then deposit some of it into a Roth IRA. Unfortunately, you must have earned income to be able to contribute new dollars into a Roth IRA. And again, a lot of people who are already at or past RMD age are not working, so they don’t have earned income. Remember, your Social Security or pension don’t count as earned income. To qualify as earned income, it must come from a 1099 or W-2 job.
When you take an RMD, you can take it from multiple accounts. Generally, people take it out of one just to simplify things. If you have an outside 401K, you must take an RMD specifically from that account; you can’t satisfy it from an aggregate IRA distribution, so make sure you have all of that in mind when planning for RMDs.
One of the other Social Security changes you can expect is a cost of living adjustment. We saw over an 8% increase on Social Security during the COVID-19 era. In the last couple of years, we’ve seen well over 4.5% since we’ve been in a period of high inflation. It doesn’t really feel as though inflation has come down on the goods and services we pay for, but the government reports suggest it is declining. That has reduced the cost of living adjustments that will be applied to Social Security recipients in 2025. This year, your benefit check will increase by 2.5%. While we’ve seen lower cost of living adjustments, it’s nowhere near the 4% or 8% increases we’ve grown accustomed to over the past years, so it’s something to keep in mind.
This year we’ll also see the max earnings increase to just a little above $176,000. That means that between you and your employer, you pay about 12.4% out of your paycheck and your employer pays a portion of that, up to 50%, into FICA. It’s important to keep this in mind, especially for anyone who is self-employed or if you own an entity or company where you draw a salary. In some cases, it may not make sense to pay yourself more than the max earnings limit (approximately $176,100). It may make more sense to take distributions or expense things in other ways. Just keep in mind that the max being taxed is 6.2% from you, the employee, and 6.2% from the employer for a total of 12.4%.
The max Social Security benefit for 2025 is also increasing. In 2025, it has risen to $4,018 per month. The max benefit for the past several years has been in the $3,000 range. Being up above $4,000 now, that’s a big check, especially if you’re married. That could mean a family has $8,000 in gross income every month, without having to draw from retirement savings. This is just another reason it matters to optimize your claiming strategy. In fact, many of our clients at REAP Financial come in wanting to identify the best Social Security claiming strategy for their situation, whether they want to claim early or defer. We’ve also worked with families who want to file and suspend, also called voluntary suspension. That can be a really good strategy for families in certain situations.
If you’re getting close to retirement and are unsure what the right strategy is for you, there are a few things you can do. First, head to wealthradio.com and look at our Social Security Decision Guide, updated for 2025. That guide is helpful for understanding how benefits claiming works and the different options available. This guide also includes scenarios involving divorce, the loss of a spouse, and other common concerns.
Second, you can always send us an email at radio@reapfinancial.com, and we can set up a 20-minute consultation in the office or on Zoom. We will use that conversation to help you find the optimal time to claim your Social Security. Within twenty minutes, you can walk away with specific ideas around what your best claiming strategy may be.
9. What to Do with a 529 When a Kid Is Ready to Go to College?
Many of our readers work hard to set their kids or grandkids up for success by contributing to 529 college savings plans. Oftentimes, you start saving in these accounts early, so the money has a lot of time to grow. You’ve likely been funding this for a long time, investing aggressively, and picking the funds. However, when your student gets ready to head off to college, it can be difficult to know what to do with that fund. At this point, you probably want to start distributing those funds in a way that helps shield you from loss. Especially now, with the possibility of a major market correction in the next year or two, you may be wondering if it’s better to cash out or leave the funds invested.
If you want to cash out, you’ll want to be very careful. Since 529s are intended for specific education expenses, you may be subject to penalties if you don’t use the money for a qualified expense. For example, if you pay a tuition bill in the beginning of the year, you need to take a distribution on that account before the end of the calendar year because you have to demonstrate the money was used to cover a qualified expense (like tuition) in the same year. If you were to cash out just to go after safety without using that cash toward a qualified expense, that could trigger a tax bill or penalty. We don’t want to see you go through that.
If you’re looking for more safety during this time, you could instead talk to the plan administrator and see if you can shift some of those funds into money market options or a stable value fund. Both of those options offer lower volatility and more consistent, modest returns. Your options may look different depending on your plan, so if you’re interested, speak to a counselor or an adviser about the best way to proceed. In short, if you want to minimize risk as your student heads to college, we suggest keeping your money in the plan and exploring lower-risk options within it.
We also want to make sure you’re aware that while a 529 is a great option for college savings, it is not the only way to help a child or grandchild pay for school. There are UGMA and UTMA accounts. There are even ways you can fund Roth IRAs for your children or grandchildren, depending on your situation. If you’re interested in other approaches, we’d encourage you to visit our YouTube channel, REAP Financial, to get a deep dive on these options.
When you start to think about Social Security or planning to transition into retirement, you should consider the earnings cap or earnings test. There are many different ways people transition into retirement. Many successful retirees are working full-time with high-paying jobs, so as they approach retirement they’re at their highest earning years. Lots of them aren’t interested in quitting work cold turkey. Many people prefer to transition slowly by working part-time instead.
With different approaches to the retirement transition, it is no wonder we are often asked whether retirees can take Social Security after they’ve retired and taken on a part-time job. The answer here is maybe, and that’s because of the earnings cap on Social Security. Lots of people retire before they officially reach their full retirement age, generally between 66 and 67 ½. If you retire, it can be tempting to start collecting Social Security, since you are so used to having a regular paycheck come in. It feels like a good time to start getting money out of the system.
However, if you’re making over $23,400 in 2025, you will start seeing a penalty assessed on your Social Security check. On average, that check would be approximately $1,950 every month. From there, they charge you a $1 penalty for every $2 you make above the $23,400 limit. For example, many years ago a client came into our office and asked for advice on their situation. They had retired, started working a part-time job, and turned on their Social Security benefits. Within 30 or 45 days, their Social Security check started coming with the full amount, alongside their usual paycheck. That continued for the full year, and they felt pretty good about their income with the Social Security combined with part-time income.
Then, when they filed their taxes, the IRS realized they were taking Social Security and earning above the earnings cap. To repay the penalties on earnings above the earnings cap, the IRS gave them two options: 1) cut a check for the amount owed according to the earnings cap rules, or 2) allow the IRS to withhold Social Security payments until the amount was paid back. As you can imagine, both of these options put the individual in a difficult situation, since they weren’t planning to pull a large sum out of their portfolio and were counting on the combination of part-time income and Social Security benefits to cover their living expenses.
In short, you need to keep the Social Security earnings cap in mind if you’re not yet at full retirement age. Again, the cap this year is $23,400. If you’re working and plan to retire in the same year and begin Social Security, a higher threshold applies — just above $62,000 for that transitional year. This is just one example of the nuances of the Social Security system and claiming timeframes. For more details on this and other key strategies, head to wealthradio.com and download a free copy of the Social Security Decision Guide, which is updated for 2025. That guide is packed with content and resources to help you determine the best way to claim your Social Security based on your individual circumstances.
This is a question we received from one of our followers, Nadia. She said, “I was married for 21 years, and I’ve been divorced for 14 years now. I never remarried. Can I file on my ex-husband’s Social Security benefit when I’m 62 and wait until I’m 70 to file on my own?” This question has a few elements, so we’re going to break it down bit by bit. The first qualifier is that you need to have been married for at least 10 years to claim an ex-spouse’s benefits. In your case, that limit was exceeded.
The second qualifier is that you cannot have remarried after your divorce, which also applies to this situation. If you had remarried, you wouldn’t be eligible. Finally, if your ex-spouse is still alive when you decide to claim, that will dictate what you get. If you qualify for ex-spouse Social Security, you will generally receive half of what they’re getting. Those are the basics of how it works.
In fact, believe it or not, if you outlive them, you could get 100% of that benefit. When you think about the different ways that Social Security works for widows and for people who are divorced, there are a lot of nuances and timing strategies to consider for ex-spouse support in conjunction with your own benefit. In some cases, it may make sense to claim your personal benefit early. In other cases, it may make sense to start claiming theirs if it’s larger than yours. It’s hard to give more advice without specific details, so if you want to evaluate your situation in detail, we’d recommend you check out the Social Security Decision Guide at wealthradio.com. That guide even has a section devoted to widows and divorced spouses, which covers some of their options.
12. Does Voluntary Suspension Work for a Single Person?
We’ve talked about voluntary suspension in our content previously, since it is one of the few strategies left for Social Security timing or claiming strategies. It can work for a single person, and in some cases, it can work for a married couple as well. First, let’s go over what we mean by voluntary suspension.
If you take your Social Security before your full retirement age (roughly age 67 for most people), you’re going to receive a reduced benefit. The idea is that since you started claiming early, you’ll get a smaller check for a longer period of time. That reduction in benefit is what keeps more people from claiming early. However, voluntary suspension allows you to suspend your benefit once you reach full retirement age, if you previously claimed it early. That means your checks will stop. You may be wondering, why would I want to do that?
In this scenario, when you use voluntary suspension, your benefit actually goes back into deferral. It begins to earn delayed retirement credits again. A lot of people don’t know this, but if you’re taking Social Security and you’re still working and paying into the system, you’re paying into FICA. That means your Social Security check will grow not just with delayed credits, but also because you’re actively paying into the FICA system. And if you’re working and not taking Social Security, your benefit will grow by both your FICA contributions and those delayed credits. From ages 67 to 70, that’s approximately 8% growth annually.
While that’s slightly lower than the increase you receive from ages 62 to 67, it can still make sense for some individuals — and even for couples. For example, let’s say a married couple both have sizable Social Security benefits. They retire early, and one spouse turns on their Social Security to help support their early retirement lifestyle without draining their investment accounts. The other spouse allows their benefit to grow in deferral. That means some income is coming in, while their overall retirement assets remain mostly untouched.
Now, let’s fast forward. They’re both 67 years old. One spouse has been receiving benefits, while the other has deferred. At this point, they may decide to do a voluntary suspension and stop the benefit that had been active. That benefit will begin growing again. Meanwhile, the other spouse may choose to start their benefit. By alternating, they can keep some Social Security income flowing in while potentially increasing future benefits.
While this strategy won’t be ideal for everyone, it may be useful for some, depending on several factors. Much of it depends on how much income you need to maintain your lifestyle. In other words, it comes down to your budget. As we’ve said many times before, your budget is the most important number in your retirement plan. Whether your assets can support your retirement lifestyle largely depends on your withdrawal rate. So again, voluntary suspension can be an ideal strategy for some, but it depends on your specific timeline and goals.
Thank You for 12 Years!
With twelve years behind us, we’re excited to keep our community flourishing. We can’t thank you enough for your engagement over the years across our platforms, and we’ve still got a great year ahead of us. With lots of changes on the horizon, you can count on us at REAP Financial to be a purposeful resource when it comes to the changing retirement landscape and your options within it. Stay tuned for more articles and tips from our team.
Disclosure
This content is sponsored by REAP Financial Group, LLC. Investment Advisory Services provided by REAP Financial Group, LLC, a Registered Investment Advisory Firm. Opinions expressed in this article are provided for informational purposes only and may change without prior notice. Information presented should not be regarded as a complete analysis of the subjects discussed and should not be construed as an endorsement or inducement to invest or as an offer to buy or sell any securities. The content should not be viewed as personalized investment advice. A financial adviser and tax professional should be consulted before making any investment decisions or implementing any strategies discussed. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. The tax and estate planning information provided here is general in nature. Always consult an attorney or tax professional regarding your individual legal or tax situation. The firm only transacts business in states where it is properly registered, or excluded or exempt from registration requirements. Registration does not imply a certain level of skill or training.
Chris Heerlein, a Texas native, is the CEO of REAP Financial and founder of REAP Private Client Group (RPCG), specializing in wealth creation, preservation, and growth for affluent individuals, business owners, and executives. RPCG provides expert financial and investment advice, advanced tax strategies, business succession planning, and unparalleled client service. Chris is a trusted financial advisor, author of Divorce With Dignity (2019) and Money Won’t Buy Happiness But Time to Find It (2017), and a columnist for Kiplinger Personal Finance Magazine.
He has been featured in Fortune, Money Magazine, Bloomberg Businessweek, and U.S. News & World Report. Chris also hosts Wealth Radio on NewsRadio KLBJ and is a sought-after speaker. Based in Austin, Texas, he lives with his wife, Hannah, and their three children and actively supports charitable causes.
