If you’re nearing retirement, new 401(k) rules could help you save significantly more. Starting in 2025, Americans aged 60 to 63 will benefit from enhanced contribution limits under the SECURE Act 2.0, offering a powerful way to boost retirement savings during these critical years.
Catch-Up Contributions: The Basics
Currently, individuals aged 50 and older can make catch-up contributions to their 401(k) plans, allowing them to save more than the standard limit. For 2024, this means contributing an additional $7,500 on top of the $22,500 annual cap. These provisions aim to help older workers close any gaps in their retirement savings.
The New “Super Catch-Up” Limit
Under the SECURE Act 2.0, a new “super catch-up” rule will come into effect in 2025. Individuals aged 60 to 63 can contribute the greater of $10,000 or 150% of the standard catch-up limit for that year, with adjustments for inflation. For example, if the catch-up limit in 2025 remains at $7,500, the super catch-up would be $11,250 (150% of $7,500). If the $10,000 floor rises with inflation, it could provide an even greater opportunity to save.
At age 64, participants will revert to the regular catch-up limits.
Why the Super Catch-Up Matters
This enhanced savings opportunity comes at a crucial time for many individuals:
- Peak Earning Years: Those in their early 60s often earn more, making it easier to allocate additional funds toward retirement savings.
- Closing Retirement Gaps: The super catch-up helps individuals bolster their nest eggs before leaving the workforce.
- Longevity and Rising Costs: With people living longer, this provision supports more secure retirements amid inflation and increasing healthcare expenses.
Steps to Maximize the Opportunity
- Evaluate Your Budget: Identify ways to free up income to maximize contributions, such as cutting unnecessary expenses or reallocating resources.
- Consult a Financial Advisor: Professional guidance can help tailor a strategy, considering tax implications and long-term goals.
- Understand Tax Implications: Traditional 401(k) contributions reduce taxable income now but are taxed during retirement withdrawals. Assess whether traditional or Roth 401(k) contributions better suit your situation.
- Stay Informed: Keep up with IRS updates on contribution limits and inflation adjustments.
A New Era in Retirement Planning
The super catch-up contribution reflects a growing emphasis on enhancing retirement readiness. By taking full advantage of this new provision, individuals aged 60 to 63 can strengthen their financial security, potentially reduce their tax liability, and enter retirement with greater confidence.
If you’re approaching this age bracket, now is the perfect time to reassess your retirement strategy. With the super catch-up, you can pave the way for a more secure and fulfilling retirement journey.
John Hadwen is a Principal at ARB. He specializes in providing individuals and businesses with comprehensive
tax compliance and consulting services related to closely-held business, manufacturing, construction & real estate, and professional services firm taxation. Prior to joining ARB, John was a Tax Principal at a large, regional CPA firm.