Higher Catch-Up Contributions Available for Certain Older Employees Starting in 2025
SECURE 2.0 and Its Impact on Retirement Savings
The year is flying by, and before we know it, 2025 will be here. With the arrival of the new year, several new provisions from the 2022 SECURE 2.0 law that impact retirement plans will become effective. One of the changes allows certain older participants in company savings plans and SIMPLE IRAs to make higher catch-up contributions.
Key Changes in Catch-Up Contributions for Older Employees
401(k), 403(b) and Governmental 457(b) Plans
Under current law, employees in 401(k) plans (and 403(b) and governmental 457(b) plans) who attain age 50 by the end of a year can make salary deferrals in excess of the regular deferral limit. For example, in 2024, participants aged 50 or over can make an additional $7,500 on top of the regular $23,000 limit – for a total of $30,500. Starting in 2025, employees who turn 60, 61, 62 or 63 by the end of a year will be able to make even higher catch-up contributions for that year. So, for example, as long as you reach 60 by December 31, 2025, you’re eligible for the extra catch-up for that year – even if you’re only 59 when you make those deferrals.
Determining the 2025 Special Catch-Up Contribution Amount
How much is this special catch-up for 2025? Unfortunately, that’s not crystal clear. SECURE 2.0 says it’s the greater of $10,000 or 150% of the 2024 regular catch-up limit. The 2024 catch-up limit is $7,500, and 150% of that amount is $11,250. So, it would seem the 2025 special catch-up should be $11,250. But the Congressional summary of SECURE 2.0 suggests that Congress actually intended the 2025 special catch-up to be the greater of $10,000 or 150% of the 2025 regular catch-up limit. A draft bill in Congress, which hasn’t yet been introduced, would fix this error and several other SECURE 2.0 glitches. In any case, we know the 2025 catch-up for ages 60-63 will be at least $11,250.
Whatever the special catch-up for 2025 ends up being, it will be indexed for inflation starting in 2026.
Understanding SIMPLE IRAs and Their Catch-Up Limits
Higher Catch-Up Contributions for SIMPLE IRAs in 2025
The higher catch-up also will be available starting in 2025 for SIMPLE IRA participants turning 60, 61, 62 or 63 by the end of the year. (The 2024 regular deferral limit is $16,000, and the age 50-or-older catch-up is $3,500 – for a total of $19,500). SECURE 2.0 is clear that the 2025 special catch-up is the greater of $5,000 or 150% of the 2025 regular catch-up limit. We won’t know the 2025 regular catch-up limit until the IRS announces all of the 2025 retirement dollar limits in a few weeks. However, the 2025 regular catch-up limit will certainly be the same as, or higher than, the 2024 $3,500 regular catch-up limit. So, the 2025 special catch-up will be at least $5,250 (150% x $3,500). Again, that amount will be adjusted for inflation starting in 2026.
What Happens if Your Plan Doesn’t Offer Catch-Up Contributions?
Keep in mind that plans and SIMPLE IRAs don’t have to offer age 50-or-older catch-ups at all. If yours doesn’t – then the new special catch-up for ages 60-63 won’t be available.
By Ian Berger, JD
IRA Analyst
Ed Slott and Company, LLC
Frequently Asked Questions about SECURE 2.0 Catch-Up Contributions
What is SECURE 2.0, and how does it impact retirement contributions?
SECURE 2.0, a law passed in 2022, introduces changes to retirement planning, such as enhanced catch-up contributions for older employees. These provisions aim to allow certain older participants to save more for retirement beginning in 2025.
Who qualifies for the increased catch-up contribution starting in 2025?
Participants in 401(k), 403(b), governmental 457(b) plans, and SIMPLE IRAs who turn 60, 61, 62, or 63 by the end of the year qualify for the new, higher catch-up contributions.
What is the expected catch-up contribution amount for eligible employees in 2025?
For 2025, the special catch-up contribution is expected to be at least $11,250 for 401(k)-type plans and $5,250 for SIMPLE IRAs, based on current calculations. These amounts will be indexed for inflation beginning in 2026.
Will the new catch-up contributions be required by all retirement plans?
No, not all retirement plans are required to offer catch-up contributions, so the availability of the new special catch-up for ages 60-63 will depend on whether the plan includes this feature.
What happens if there’s a discrepancy in the intended contribution limit?
The current language in SECURE 2.0 has caused some confusion, suggesting Congress may clarify the intended limits. Any forthcoming Congressional adjustments would clarify discrepancies.
How does this change benefit older employees planning for retirement?
By allowing older employees to contribute more during peak earning years, SECURE 2.0 aims to help these individuals build a more robust retirement fund in the years leading up to retirement.
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.