Super Catch-Up limits for Older Employees Take Effect
New retirement plan catch-up rules take effect in 2025 that will benefit older participants in employer sponsored retirement plans. Under the SECURE Act 2.0, there are new rules for catch-up contributions specifically aimed at wage earners aged 60 to 63.
Starting in 2025, employees aged 60 to 63 can make catch-up contributions to their 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans up to the greater of:
$10,000 (indexed for inflation beginning in 2026), or
150% of the regular catch-up contribution limit for the year in which they are eligible.
(Participants may make regular contributions up to $23,500 to their 401(k), 403(b), or similar plan accounts in 2025.)
Example for 2025: The regular catch-up contribution limit for 2025 is $7,500 (as it was in 2024), those aged 60-63 may make a catch-up contribution up to $11,250 ($7,500 * 1.5) in 2025, since this is greater than $10,000.
Additional Points:
Optional for Employers: While catch-up contributions are generally optional for employers to offer, if they do offer catch-up contributions, they must provide these increased limits to eligible participants unless further guidance clarifies otherwise.
Reversion to Standard Limits: Once an individual turns 64, they revert to the standard catch-up contribution limits applicable to employees age 50 and older.
Contribution Type: Unlike the rule for high earners requiring Roth contributions (effective from 2026), these increased catch-up contributions for ages 60-63 can be made as either pre-tax or Roth contributions, depending on what the plan allows and the participant's choice.
Application Across Plans: These rules apply to several types of employer-sponsored retirement plans including 401(k), 403(b), governmental 457(b), and SIMPLE IRA plans.
A Boost to Retirement Savings: These increased limits allow for significant additional contributions during a crucial time when individuals might be earning more but have fewer years before retirement to make up for earlier under-saving.
Tax Benefits: Utilizing these catch-up contributions can provide tax benefits by reducing taxable income in peak earning years and potentially growing retirement savings tax-deferred or tax-free (in the case of Roth contributions).
This SECURE Act 2.0 provision aims to improve retirement readiness by giving those in their early 60s an opportunity to boost their savings. However, it's important for participants to understand the specifics and ensure compliance with these new rules.
I hope you’ll be able to put this information to good use. As always, if you have any questions how these or other changes brought about in SECURE Act 2.0 will affect you in 2025, give me a call. I can help.