Use Catch-Up Contributions to Secure Your Retirement Goals
How big is your retirement nest egg? Too often, people sacrifice retirement savings to afford a bigger home, cover emergency expenses or pay for their children’s education. But time flies, leaving many retirees “financially fragile.”
In fact, only half of today’s retirees believe that they’ve built a sufficient retirement nest egg, according to a recent study by the nonprofit Transamerica Center for Retirement Studies. The study also found that roughly three-quarters of respondents wish they’d saved more consistently in their younger years.
Don’t panic if you’re nearing retirement without a sizable nest egg to count on. Assuming you participate in a 401(k) plan, you can turbocharge your savings with catch-up contributions after you turn 50. Starting in 2025, participants ages 60 to 63 may also be able to make “super” catch-up contributions under the SECURE 2.0 Act.
Here are the contribution rules for 401(k) plans, plus some details about new proposed regulations issued by the IRS on January 10, 2025. Comparable contribution rules apply to 457(b) plans for government units and 403(b) plans for tax-exempt organizations.
Important: A different set of complex new rules apply to Savings Incentive Match Plans for Employees (SIMPLEs). Contact your financial advisor for more information.
Basic Contribution Rules
The tax law enables participants in defined contribution plans to make elective contributions within generous limits. These contributions are invested and continue to grow tax-deferred until they’re withdrawn, usually in retirement when participants are often in a lower tax bracket.
Retirement plan distributions are taxed at ordinary income rates. Withdrawals made before the participant turns 59½ may also incur a 10% penalty unless an exception applies.
The annual amount of salary you can defer to a defined contribution plan is adjusted annually for inflation. If you’re age 50 or older, you can make extra catch-up contributions to help grow your nest egg as you approach retirement.
For 2025, 401(k) participants can elect to defer up to $23,500 of their salaries to their accounts on a pretax basis. The allowable catch-up contribution is $7,500 for those 50 or older, bringing their maximum contribution to $31,000. (Beginning in 2025, the catch-up contribution limit is indexed annually for inflation, but there’s no change from 2024.)
In addition, employers may make “matching” contributions to 401(k) participants’ accounts, up to certain limits. A common match is 50% of the employee’s regular contribution up to 6% of his or her salary. For example, the match for an employee with a salary of $100,000 would be $3,000. All contributions, including employee and employer contributions, are subject to overall tax law limits.
Super Catch-Up Contribution Rules
SECURE 2.0 carves out a special tax break for 401(k) participants who are ages 60 through 63. For these people, the catch-up contribution maximum is currently increased to the greater of:
- $10,000, or
- 150% of the regular catch-up contribution amount for 2024 ($11,250 for 2025).
Beginning in 2026, the $10,000 amount will be annually adjusted for inflation.
Therefore, an employee who turns age 63 in 2025 can defer up to $23,500 of salary to a 401(k) and add a super catch-up contribution of $11,250. So, for 2025, the grand total that a 63-year-old could contribute to his or her 401(k) account is $34,750.
Note, however, that an employee age 60 through 63 making super catch-up contributions to the plan can’t also make regular catch-up contributions. When the employee reaches age 64, the catch-up contribution limit reverts to the lower figure.
Recent IRS Proposed Regulations
In addition, SECURE 2.0 imposes a new requirement for 401(k) participants eligible to make catch-up contributions. For employees earning more than $145,000, any catch-up contributions — whether they’re regular or super catch-up contributions — must be made under a Roth option in their 401(k) accounts. As a result, participants with earnings above this threshold can’t make catch-up contributions on a pretax basis, but their Roth-based withdrawals will be tax free.
Initially, this change was scheduled to take effect in 2024 under SECURE 2.0. But many employers weren’t yet equipped to implement the rules. So, the IRS postponed the Roth 401(k) mandate to 2026. Accordingly, if you’re eligible to make catch-up contributions in 2025, you can still make them to a traditional 401(k).
The new proposed regulations clarify several key issues relating to the new catch-up contribution rules. Notably, the IRS states that the Roth 401(k) mandate won’t be extended further. However, the proposed regs permit employers to avoid the Roth 401(k) mandate while it’s still in effect by not offering Roth contributions under their plans. In that case, employees over the salary threshold could still make catch-up contributions on a pretax basis. Similarly, employers aren’t required to offer super catch-up contributions to participants ages 60 to 63.
The proposed regs generally apply to contributions in tax years beginning more than six months after final regulations are issued (later for collectively bargained plans). A public hearing on the proposed regs is scheduled for April 7, 2025. Contact your tax advisor for the latest developments.
For More Information
Catch-up contributions allow older 401(k) plan participants to make up lost ground on their retirement goals. And SECURE 2.0 offers enhanced savings opportunities. However, the rules are complex. Contact your financial advisor for help devising a retirement savings strategy that’s right for your situation.
Copyright 2025
This article appeared in Walz Group’s March 24, 2025 issue of The Bottom Line e-newsletter, produced by TopLine Content Marketing. This content is for informational purposes only.
