Why Older Americans Are Focusing on IRA Contributions in 2025

In 2025, older Americans are increasingly prioritizing Individual Retirement Account (IRA) contributions, driven by a confluence of legislative changes and shifting economic realities. Tax incentives embedded in the Secure 2.0 Act and the One Big Beautiful Bill Act are reshaping how retirees allocate assets and transfer wealth, creating a strategic imperative to maximize retirement savings. This shift reflects both immediate financial planning needs and long-term estate management goals.

Tax Incentives Fueling IRA Contributions

The Secure 2.0 Act has introduced significant enhancements to retirement savings for older Americans. Notably, individuals aged 60–63 can now contribute up to $34,750 to IRAs or 401(k)s in 2025, a 50% increase over standard catch-up limits [3]. This "super catch-up" provision, indexed to inflation, allows pre-retirees to bolster savings in their final working years. Concurrently, the One Big Beautiful Bill Act offers a $6,000 tax deduction for seniors aged 65 and older (or $12,000 for married couples), effective through 2028, provided their income remains below $75,000 (or $150,000 for joint filers) [1]. While this deduction phases out at higher incomes, it incentivizes older Americans to optimize retirement accounts to reduce taxable income, particularly as concerns about Social Security insolvency grow [1].

These incentives are paying off. Data from Fidelity’s 2025 retirement analysis shows a 25% increase in IRA contributions among Generation X and a 37% rise among Baby Boomers, with average contributions of $1,158 and $1,839, respectively [1]. Traditional IRAs remain dominant, held by 33% of U.S. households, while 26% own Roth IRAs [3]. The latter’s popularity is rising as retirees seek tax-free growth and withdrawals, a strategy amplified by Secure 2.0’s elimination of required minimum distributions (RMDs) for Roth 401(k)s [2].

Asset Allocation and Wealth Transfer Strategies

The tax landscape is also reshaping how older Americans allocate assets and plan for heirs. Secure 2.0’s extension of RMD ages—from 72 to 73 in 2023 and to 75 in 2033—gives retirees more time to strategize distributions [2]. Meanwhile, the One Big Beautiful Bill Act’s permanent increase in the federal estate tax exemption to $15 million per individual (effective 2026) has spurred interest in gifting and trust-based strategies to minimize tax liabilities [4].

A key trend is the rise of Roth IRA conversions, driven by the SECURE Act’s 2019 elimination of the "stretch IRA." Non-spousal beneficiaries must now deplete inherited IRAs within 10 years, often with annual RMDs in between [2]. Converting traditional IRAs to Roth IRAs—despite upfront tax costs—offers heirs tax-free growth and withdrawals, a compelling trade-off given the 2025 income limits that expanded Roth eligibility [2].

For high-net-worth individuals, spousal lifetime access trusts (SLATs) and generation-skipping transfer (GST) strategies are gaining traction. SLATs allow one spouse to remove appreciating assets from their taxable estate for the benefit of the other spouse and descendants [1]. With the 2025 GST exemption at $13.61 million per person, families can transfer wealth to grandchildren while avoiding intermediate tax layers [4]. These tools are particularly valuable as uncertainty looms over potential future tax law changes.

The Role of 529 Plans and Charitable Giving

Secure 2.0 also facilitates cross-asset flexibility. The law permits 529 plan funds to be rolled into Roth IRAs, up to $35,000 per beneficiary, helping older Americans repurpose unused education savings for retirement [2]. Additionally, qualified charitable distributions (QCDs) have been indexed to inflation, allowing retirees to donate up to $110,000 annually (2025) from IRAs without triggering taxable income [2]. This dual benefit—reducing tax liability while supporting causes—has become a cornerstone of retirement income planning.

Challenges and Considerations

Despite these opportunities, challenges persist. Overall IRA contribution rates remain modest, with fewer than 20% of U.S. households making contributions in 2025 [3]. Moreover, the temporary nature of some incentives—such as the One Big Beautiful Bill’s $6,000 deduction—requires retirees to balance short-term gains with long-term uncertainty. Financial advisors emphasize the importance of personalized planning, given variables like life expectancy, health care costs, and market volatility.

Conclusion

The 2025 tax environment has created a pivotal moment for older Americans to rethink retirement savings and wealth transfer. By leveraging Secure 2.0’s enhanced contribution limits, Roth conversions, and estate planning tools, retirees can mitigate risks from Social Security insolvency and rising healthcare costs. As the One Big Beautiful Bill’s provisions take effect, strategic IRA management will remain central to preserving intergenerational wealth. For those navigating these changes, the message is clear: proactive, tax-smart planning is no longer optional—it’s essential.

Source:
[1] One Big Beautiful Bill Signed; Retirement Plans Avoid ... [https://www.napa-net.org/news/2025/6/breaking-house-clears-one-big-beautiful-bill-for-trumps-signature/]
[2] SECURE Act 2.0 benefits and strategies: 6 new opportunities [https://www.ameripriseadvisors.com/dona.l.walton/insights/secure-act-2-opportunities/]
[3] IRAs Play an Increasingly Important Role in Saving for ... [https://www.ici.org/news-release/25-news-ira]
[4] Generation-Skipping Transfer Tax Planning Opportunities [https://www.bdo.com/insights/tax/generation-skipping-transfer-tax-planning-opportunities-planning-to-last-many-lifetimes]