The SECURE 2.0 Act continues to transform retirement planning by introducing innovative provisions aimed at enhancing retirement savings opportunities. One of the most impactful changes, effective January 1, 2025, is the enhanced catch-up contribution limit for individuals aged 60 to 63. This provision allows eligible participants in 401(k), 403(b), and governmental 457(b) plans to contribute significantly more to their retirement accounts during the critical years leading up to retirement.
For many workers, ages 60 to 63 represent a crucial time to maximize retirement savings. The enhanced catch-up limit—offering up to $10,000 or 150% of the standard age 50+ catch-up contribution limit—provides a valuable opportunity to bolster financial security for the future. As this change approaches, plan sponsors and participants alike must prepare to navigate and leverage the new rules effectively.
In this article, we’ll break down the key details of this new provision, explore its implications for plan sponsors, and provide actionable insights on how participants can take full advantage of the increased contribution limits.
Key Details of the Provision:
- Eligibility: Participants who will attain ages 60, 61, 62, or 63 by the end of the calendar year can utilize this increased catch-up limit. Once participants reach age 64, they revert to the standard age 50+ catch-up limit.
- Contribution Limits: For example, if the standard age 50+ catch-up limit is $7,500, eligible participants aged 60 to 63 could contribute up to $11,250 (150% of $7,500). These increased amounts will be indexed for inflation after 2025.
- Applicable Plans: This provision affects governmental 457(b), 401(k), and 403(b) plans that currently offer catch-up contributions.
Implications for Plan Sponsors:
Plan sponsors should prepare for this change by:
- System Updates: Reviewing and updating payroll and administrative systems to accommodate the new catch-up limits for participants aged 60 to 63. This may involve creating new limit codes and ensuring accurate monitoring of contributions.
- Communication: Informing eligible participants about the increased contribution opportunities and providing guidance on how to take advantage of them.
- Coordination with Service Providers: Collaborating with payroll providers and third-party administrators to ensure seamless implementation of the new limits.
Example Scenario:
Assuming a standard defined contribution (DC) limit of $23,500 and an age 50+ catch-up limit of $7,500 in 2025:
- Participants aged 50 to 59: Total allowable contribution = $23,500 (standard limit) + $7,500 (catch-up) = $31,000.
- Participants aged 60 to 63: Total allowable contribution = $23,500 (standard limit) + $11,250 (150% of $7,500) = $34,750.
- Participants aged 64 and above: Total allowable contribution reverts to $31,000, as the enhanced catch-up limit applies only to ages 60 to 63.
Summary
The enhanced catch-up contribution limit introduced under Section 109 of the SECURE 2.0 Act is set to benefit individuals aged 60 to 63, allowing them to significantly increase their retirement savings starting in 2025. Eligible participants can contribute an additional $10,000 or 150% of the standard age 50+ catch-up limit, whichever is greater. This boost provides an essential opportunity for older workers to strengthen their financial foundation as they approach retirement.
For plan sponsors, this change brings operational updates, including adjustments to payroll systems and participant communication strategies. Ensuring compliance and seamless implementation will require proactive coordination with service providers and a focus on educating participants about the new contribution limits.
As the retirement landscape evolves, this provision highlights the importance of strategic planning for both employers and employees. By embracing these new opportunities, individuals can take meaningful steps toward achieving their long-term financial goals. Plan sponsors can enhance their value by supporting participants in maximizing these savings opportunities.
