In a significant new wrinkle in retirement savings rules, some older workers will be able to put several thousand more dollars into 401(k) and similar retirement plans in 2025. The feature was included in the 2022 SECURE 2.0 Act, which stipulated that it would take effect in 2025.
First, note that the general contribution limit for 401(k), 403(b), 457, and the federal employees' Thrift Savings Plan in 2025 will be $23,500. Those who are between ages 50 and 59 -- or age 64 and older -- will be able to contribute $31,000. Those limits are up $500 from this year.
The new twist affects those who will be between 60 and 63 years old in 2025 and subsequent years. They're now granted the power to make "super catch-up contributions." Specifically, that means they can pour $34,750 into their workplace retirement plans in 2025 -- $4,250 more than their total for 2024. You qualify for this break by turning one of those qualifying ages anytime during the year. For example, someone who turns 60 in November can make the full super catch-up contribution for that year.
Federal law doesn't require employers to allow catch-up contributions, but adoption of the feature is nearly universal. Meanwhile, a recent CNBC survey found that 40% of American workers are lagging in their saving and planning for retirement, and that 21% of retirees have no savings at all. Similarly, a Bankrate survey found 35% of Boomers consider their savings "significantly behind" where they should be.
The super catch-up feature was included in the 2022 SECURE 2.0 Act, which stipulated that it would take effect in 2025. Another catch-up contribution twist is slated to take effect in 2026: For those who make more than $145,000 in 2025, all 2026 catch-up contributions must be made to Roth accounts. The same test based on prior-year earnings will continue to apply in subsequent years.
Traditional 401(k) contributions aren't taxed in the year they're made, but instead are taxed upon withdrawal. Roth accounts flip the tax benefits: When money is put into a Roth, it's subject to federal income taxes, but qualified withdrawals in retirement are tax-free.
A Vanguard report on the behavior of nearly 5 million participants in its retirement plans suggests that the new break will only be used by a small percentage of those eligible to use it. Vanguard reports that, as of 2023:
- 14% of participants max out their contributions
- 15% of those eligible for catch-up contributions take advantage of the opportunity
Traditional and Roth IRA limits for 2025 aren't changing: As with this year, qualified individuals can contribute $7,000, with an additional $1,000 allowed for those who will be 50 or older at any point in the year.
