Higher Catch-Up Contributions Available for Certain Older Employees Starting in 2025
Catch-Up Contributions Increase in 2025 for Older Employees
Beginning in 2025, eligible older employees will be able to contribute more to their retirement savings, thanks to a provision in the SECURE 2.0 Act. This update affects those participating in workplace retirement plans and SIMPLE IRAs. The new rules apply to individuals who turn 60, 61, 62, or 63 by the end of the year. Even if you are only 59 when making contributions, you qualify as long as you reach 60 by December 31 of that year.
Currently, individuals aged 50 and older can make additional contributions beyond the standard deferral limits. For instance, in 2024, participants in 401(k), 403(b), or governmental 457(b) plans may contribute an extra $7,500 on top of the $23,000 regular limit. That brings the total to $30,500. Starting in 2025, those in the specified age group will qualify for even higher catch-up contributions. Although the exact figures are still under discussion, it is expected that the new catch-up amount for qualifying participants will be no less than $11,250.
Estimating the New Catch-Up Limits in 401(k)-Type Plans
The SECURE 2.0 legislation states that the enhanced 2025 catch-up contribution will be the greater of $10,000 or 150 percent of the standard catch-up limit from the prior year. In 2024, that limit stands at $7,500. By applying the 150 percent multiplier, the result is $11,250. However, a discrepancy exists in the way the law was written, suggesting that Congress may have intended the limit to reflect 150 percent of the 2025 amount instead. Legislative clarification may arrive soon to confirm the exact method of calculation.
Regardless of the final ruling, the minimum threshold is already higher than current limits. Once established, the special catch-up contribution for ages 60 through 63 will increase annually with inflation starting in 2026.
SIMPLE IRA Participants Also Eligible for Higher Contributions
For individuals participating in SIMPLE IRAs, the 2025 special catch-up will work similarly. The SECURE 2.0 Act makes it clear that employees who turn 60 through 63 by the end of the year can also contribute more. In 2024, SIMPLE IRA participants can defer up to $16,000 and add an extra $3,500 if they are at least 50 years old. This totals $19,500.
The 2025 special catch-up for SIMPLE IRAs will be the greater of $5,000 or 150 percent of the regular catch-up limit for that year. If the 2025 catch-up limit equals the 2024 figure of $3,500, the new special contribution amount will be at least $5,250. Like the 401(k) version, this limit will also be adjusted annually for inflation beginning in 2026.
Plan Participation and Availability Still Depend on the Employer
It’s important to remember that employers are not required to offer catch-up contributions in their retirement plans. If a plan does not currently include the standard age 50-or-older catch-up option, then the enhanced catch-up for ages 60 through 63 will not apply. Employees should review their plan documents or speak with their HR department to determine eligibility. Set up a meeting with a Financial Advisor to explore your options.
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Frequently Asked Questions
What is SECURE 2.0 and how does it affect retirement contributions? S
ECURE 2.0 is a federal law enacted in 2022 that introduces updates to retirement plans. One of the key changes allows certain older employees to make larger catch-up contributions starting in 2025.
Who is eligible for the increased 2025 catch-up contributions?
Employees who participate in 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans and turn 60, 61, 62, or 63 during the calendar year will be eligible for the higher catch-up contribution.
How much can eligible employees contribute under the new rules?
For 401(k)-type plans, the enhanced catch-up contribution in 2025 is expected to be at least $11,250. For SIMPLE IRAs, the amount is expected to be no less than $5,250. These amounts may change based on inflation and Congressional clarification.
Do all retirement plans include the enhanced catch-up feature?
Not all employers offer catch-up contributions. If your current retirement plan does not allow age-based catch-ups, the new increased limit for ages 60 through 63 will not apply.
What if Congress changes the law before 2025 begins?
Lawmakers may introduce clarifications or corrections before 2025. A draft bill already aims to correct several technical issues in the original legislation, including those related to catch-up contribution calculations.
Why does this change matter to older employees?
The new rules give older employees the opportunity to significantly increase their retirement savings during the years when they may be earning the most. This additional savings boost can help strengthen retirement security.
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.