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They say you get better as you get older. This just might be True for 401(k) plans in 2025 For those moving into their golden years. Thanks to the provisions of the SAFE Act 2.0 for Americans ages 60 to 63, planning for retirement has seen a significant increase.
Starting in 2025, people in this age group will be eligible for something called a “super catch-up” contribution limit. Employer-sponsored retirement plans, including 401(k)s. This exciting change, recently clarified by the IRS, provides a unique opportunity to accelerate your retirement savings in those critical pre-retirement years.
Key topic: Catch-up contribution
Catch-up contributions allow people age 50 and older to save extra money for retirement beyond standard contribution limits. For 2024, the catch-up contribution limit was $7,500, above the $22,500 annual contribution cap for 401(k)s and similar plans. These additional contributions are designed to help older workers close the gaps in retirement savings they've built up over the years.
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Introducing Super Catch Up
Under the SECURE Act 2.0, people ages 60, 61, 62 and 63 can contribute more to their retirement accounts starting in 2025. The new “super catch-up” limit will be the greater of $10,000 or 150% of the regular catch-up contribution limit for a given year, adjusted annually for inflation. At 64, you go to regular catch-ups.
401(k)s fared a little better for those ages 60-63, thanks to new catch-up provisions. (Reuters)
For example, if regular catch-up contributions remain at $7,500 in 2025, the super catch-up limit will increase to $11,250 (150% of $7,500). If the $10,000 floor is adjusted for inflation, it can rise even higher, allowing individuals to add substantially to their retirement savings.
Why is this important?
This increase comes at an important time for many individuals. Those in their early 60s often find themselves at the peak of their earning potential, with more disposable income available for savings. At the same time, they are rapidly approaching retirement and may feel pressure to bolster their nest eggs. Super catch-up offers a golden opportunity to cover any shortfall and strengthen their financial security.
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Additionally, this provision is consistent with the reality that many Americans are living longer. Growing retirement savings can help ensure a more comfortable and secure retirement in the face of rising health care costs, inflation and other financial challenges.
Key considerations
To take full advantage of Super Catch-Up, strategic planning is essential:
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- Assess your budget: Make sure you have the financial flexibility to maximize your contribution. Unnecessary cost cutting or resource reallocation may be necessary.
- Consult a financial advisor: Professional guidance can help optimize your savings strategy, factoring in tax implications and long-term goals. A good place to start is exit wealth Learn more about this technique.
- Understand the tax implications: Contributions to traditional 401(k)s are tax-deferred, reducing your taxable income now but subject to taxes when withdrawn in retirement. Consider how it fits into your overall tax strategy and whether a regular 401(k) or Roth 401(k) makes more sense for your situation.
- Stay informed: Keep an eye out for annual IRS updates on contribution limits and inflation adjustments.
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Super catch-up provides a golden opportunity to cover any shortfall and strengthen their financial security.
A new era of retirement savings
Super catch-up contributions are a testament to the growing focus on increasing retirement readiness for Americans. By taking advantage of this opportunity, 60- to 63-year-olds can significantly increase their retirement savings, potentially reduce their overall tax liability and provide greater peace of mind as they transition into their golden years.
If you are approaching this age bracket, now is the time to review your retirement strategy and prepare to make the most of these exciting new provisions. Retirement is a journey, and with Super Catch-Up you can make sure yours is as safe and fulfilling as possible.
Ted Jenkin is its president Exit advisors stage left and partners Exit the resource.