Inflation and longer life expectancies are putting more pressure on retirement accounts today. In fact, with rising costs of living, many retirees find that they do not have a significant decrease in their expenses. This makes it crucial to save more, and while standard 401(k) contributions can be helpful, they may not be enough for a secure financial future. That's where catch-up contributions—and now, super-sized catch-up contributions, especially—can help.
Understanding catch-up contributions
If you're over the age of 50, you may already be aware that you can make “catch-up” contributions beyond the standard annual 401(k) limit. However, a new law went into effect this year allowing eligible individuals aged 60 to 63 to make an additional $11,250 in “super-size” catch-up contributions each year they fall within this age bracket. This means that you can make a total contribution of up to $34,750 in 2025—a significant increase from the standard annual catch-up contribution of $7,500 available to those over 50.
Whether you're over 50 or in the 60 to 63 age bracket, understanding how to maximize your catch-up contributions can help you secure your long-term financial stability. Miss this window, and you could lose a powerful opportunity to strengthen your financial future.
What's changing with SECURE 2.0?
The SECURE 2.0 Act, signed into law in 2022, is designed to enhance retirement savings opportunities and includes provisions that incentivize retirement planning. One of these key provisions is the expansion of catch-up contributions, particularly for individuals in their early 60s who are approaching retirement.
Starting in 2025, the updated contribution limits are:
- The regular 401(k) contribution limit is $23,500.
- The catch-up contribution for those over 50 remains at $7,500.
- The super-sized catch-up contribution for individuals aged 60-63 increases to $11,250.
- At age 64, the catch-up limit reverts back to $7,500.
Which retirement plans are eligible?
The Super Catch-up Contribution applies to:
- 401(k) plans
- 403(b) plans
- Governmental 457(b) plans
- The federal government's Thrift Savings Plan
Since this change is optional for employers, it's important to check with your plan administrator to confirm whether your plan is eligible for these increased contributions.
How you can make the most of the super-sized catch-up window
To take full advantage of this opportunity, here are some strategies to consider:
- Plan ahead: If you're approaching age 60, you can start adjusting your budget to allocate more funds toward your retirement savings.
- Automate your contributions: Setting up automatic payroll deductions can help you consistently max out your contributions.
- Review your portfolio: If you're increasing contributions, it's good to take a fresh look at your portfolio of investment allocations to make sure it's aligned with your long-term goals.
- Consult a trusted financial advisor: Working with a professional can help you determine the best way to maximize your contributions.
Why this matters for your retirement strategy
The super catch-up contribution offers a crucial opportunity for individuals who may not have saved enough for their retirement goal and need to address any gaps in their financial plan. The additional $11,250 catch-up contribution can provide a valuable boost. However, this window is temporary, as the increased contribution limit expires after age 63.
Take steps to enhance your financial future
If you're between (or approaching) the ages of 60 and 63, now is the time to make the most of this opportunity. By planning ahead and maximizing your contributions during this window, you can help boost your retirement savings, also improving your long-term financial stability.
Strengthen your financial future by fully leveraging these increased contribution limits while they're available. Consult with a financial advisor to make sure your strategy aligns with your retirement goals. This way, you can make informed decisions that will benefit you for years to come.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
