Will you be age 60 to 63 next year? Lucky you! You have the option to contribute several thousand dollars more to your workplace retirement plan.
That’s if you can afford it, and many workers will find it’s a stretch.
Federal tax law already allows people 50 and older to make extra contributions, above the annual deferral limit, to a 401(k) or similar employer retirement plan. This year and next, that standard “catch-up” contribution is $7,500.
But starting next year, the catch-up contribution limit will be higher for people in their early 60s, as part of the federal Secure 2.0 tax law passed in 2022. They can contribute up to $11,250 next year — an additional $3,750 in catch-up contributions — beyond the general 2025 deferral limit of $23,500, the Internal Revenue Service said. That means they can potentially contribute up to $34,750 in total to a workplace retirement account.
This additional contribution — sometimes called an “enhanced” or “super” catch-up option — is available to workers ages 60, 61, 62 and 63. You’re eligible if you reach that age during the calendar year, said Dan Snyder, director of personal financial planning for the American Institute of Certified Public Accountants. (Once savers turn 64, they’re no longer eligible for the extra savings but can contribute the standard catch-up amount.)
The idea is to give people who are nearing retirement age, but are behind in savings, the chance to accumulate more money for their post-work lives. “This is an opportunity to make up for mistakes from the past,” said David John, senior strategic policy adviser at the AARP Public Policy Institute, which focuses on issues relevant to older Americans.
Getting Americans to save more for retirement is a concern as the population ages, especially as the number of companies offering pensions dwindles. The typical household headed by people ages 55 to 64 has just $10,000 saved in a retirement account, according to an analysis of federal data by the Economic Policy Institute and the Schwartz Center for Economic Policy Analysis.
People may not save for many reasons, said Jaime Eckels, a partner in the wealth management practice at Plante Moran Financial Advisors in Auburn Hills, Mich. Perhaps they had to repay student loans or take time off from work to care for their family or didn’t make enough money to feel comfortable saving a significant amount toward retirement. Some workers may have lacked access to a 401(k) earlier in their career and need to make up for lost time.
Only about half of private-sector workers participate in an employer retirement plan at any given time, said Anqi Chen, assistant director of savings research at the Center for Retirement Research at Boston College.
The catch-up contributions, Ms. Eckels said, offer “a window for those nearing retirement to sock more away.”
Extra 401(k) contributions, however, tend to benefit higher-income workers who are already contributing the maximum amount and can afford to put away even more. Just 15 percent of retirement plan participants make catch-up contributions, while more than half of those with incomes of $150,000 or more do so, according to estimates from Vanguard, a big retirement plan manager.
The new catch-up amount is beyond the reach of many workers, said Ms. Chen at Boston College. A common retirement goal, she said, is to save 15 percent of one’s income each year. Someone earning $100,000, then, might aim to save $15,000. But if the same person contributed the maximum 401(k) deferral for 2025 as well as the new catch-up amount, the total savings make up about 35 percent of that individual’s income.
“It’s a level that doesn’t really help most people,” she said, given that they must pay for housing, food and other living expenses. “They just can’t save that much.” To save $34,750 for retirement at that level, a worker would need an income of more than $230,000.
Mr. John of the AARP said one concern was that catch-up options could lead younger workers to delay saving. The best way to save for retirement is to start investing early so the money can grow over time and balances can recover from periodic market downturns. Also, waiting until closer to retirement age to boost savings may tempt people to choose riskier investments to make up ground, he said. But with fewer years to retirement, market fluctuations can have a greater impact.
“There is a temptation we see to try and beat the market,” Mr. John said. But with a shorter time horizon, he said, “you may end up with not much growth, or even much less that you started with.”
But Ms. Eckels, the wealth manager, noted that with longer life spans, money invested close to retirement might still have decades to grow. “Retirements last 20 to 30 years,” she said.
Although employers aren’t required to offer catch-up contributions, nearly all do, according to the Plan Sponsor Council of America, an industry group. Vanguard expects most employers will offer the enhanced option, said David Stinnett, the company’s head of strategic retirement consulting.
Here are some questions and answers about retirement contributions for next year:
What types of plans are eligible for the extra catch-up contributions?
In addition to participants in 401(k) plans, workers contributing to 403(b) plans offered by schools and nonprofit groups, 457(b) plans offered by many state and local governments, and the federal government’s Thrift Savings Plan are eligible to make the extra contributions.
Do catch-up 401(k) contributions have to be made to a Roth-type account?
Not yet. But under a Secure 2.0 provision scheduled to start in 2026, high earners making catch-up contributions must deposit them in a Roth 401(k), which works differently from a traditional 401(k). With a traditional account, contributions are made pretax and lower your taxable income, but you will pay taxes when you take the money out. With a Roth, you are paying the taxes now, but the money grows tax free and isn’t taxed when withdrawn in the future.
The change had been set to begin in 2024, though it was delayed to give retirement plan managers and payroll providers more time to prepare. It would have applied to people earning more than $145,000 in 2023, but the threshold is adjusted for inflation, so the amount could change, according to Vanguard.
What are the contribution limits for individual retirement accounts in 2025?
The limit on annual I.R.A. contributions next year is $7,000, the same as in 2024. The catch-up contribution for people 50 and older will also remain $1,000 for 2025, the I.R.S. said. The limits apply to both traditional I.R.A.s, which may offer a tax deduction depending on your income, and to Roth I.R.A.s, which don’t come with a deduction but do offer tax-free growth and withdrawals in retirement.
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