The new “super catch-up” contribution provision, part of the SECURE 2.0 Act, is set to significantly boost retirement savings for eligible individuals. Starting in 2025, those aged 60 to 63 can make additional contributions to their 401(k) plans, potentially enhancing their retirement portfolios. Under the new regulations, the standard 401(k) contribution limit will increase to $23,500 in 2025.
Additionally, catch-up contributions for those aged 50 and older will rise from $7,500 to $11,250 for individuals aged 60 to 63. This adjustment allows these savers to defer a total of $34,750 annually. Fidelity data shows that 97% of retirement plans have already integrated this feature.
Enhanced 401(k) contribution opportunities
Financial planners, such as Tommy Lucas from Moisand Fitzgerald Tamayo in Orlando, Florida, emphasize the importance of this provision, stating, “It’s a valuable tool, especially for older workers who need to boost their retirement savings.”
Eligibility for the enhanced catch-up contributions depends on the saver’s age at the end of 2025. For example, someone turning 60 in December will qualify for the higher contribution limit for the entire year, while an individual turning 64 before the year ends will not.
However, due to financial constraints, not all workers may be able to fully utilize the increased limits. Dan Galli, a financial planner from Norwell, Massachusetts, points out that the higher catch-up contribution limit is particularly advantageous for higher earners seeking tax deductions. Notably, a small percentage of retirement plans have yet to incorporate this new feature, meaning catch-up contributions for these plans will be capped at the old limit of $7,500.
Financial advisors recommend that savers check with their plan administrators to understand the specific provisions of their 401(k) plans and explore other savings options. This update is part of an ongoing effort to ensure Americans are better prepared for retirement, considering changing demographics and economic conditions.
Image Credits: Photo by Nick Fewings on Unsplash
