The year 2025 will bring particularly noteworthy changes to the 401(k) catch-up contribution limits for older workers. For people aged 50 and older, the Secure 2.0 Act provides some new benefits. This important legislation significantly increases the opportunities these workers have to save for retirement. Workers ages 50-59 can contribute an additional $7,500. At the same time, for those aged 60 to 63, they will benefit from a catch-up limit that grows to $11,250. Annual increase for workers aged 64 and older, the additional catch-up contribution will return to $7,500.
The new limits will be phased in beginning January 1, 2025. Eligibility for the higher contribution amounts will be based on your age as of December 31 of that year. For example, if you reach age 60 in 2025, you’ll be eligible for the new higher catch-up limit of $11,250. This significant increase is meant to allow senior workers to bolster their retirement savings in these key later-life, working years.
As one example, the total deferral limit for contributions to a 401(k) plan in 2025 will be $23,500. Workers 60 to 63 can contribute an additional $34,750 each. Taken together, this figure includes the total of both regular and catch-up contributions. Participation has stayed low even with the addition of these new provisions. For 2023, just 22% of employer plans were even providing catch-up contributions, and only a sad 15% of employees are making use of the option.
Financial planners such as Dan Galli view the expanded catch-up limits as a “great tool.” Without these limits, higher-income earners would be able to accrue far more tax-deductible dollars as they plan for retirement. Heads up that certain employer retirement plans will automatically limit catch-up contributions to $7,500. This ceiling applies once deferrals reach that level.
The retirement landscape remains in the midst of a dramatic transformation, similarly reflective of the increasing worry about attaining financial stability in our later years. According to the latest Retirement Confidence Survey, Americans expect that they will need about $1.26 million to retire comfortably in 2025. Over three-fourths of the survey respondents expressed concern about outliving their savings. That paints a broader picture of a critical need for more effective saving strategies.
Legislative changes intended to bolster savings opportunities for older workers. Many progressive employers still haven’t embraced these new attributes. According to one report, as many as 3% of retirement plans have failed to adopt the catch-up contribution feature for the coming year.