Boosting Retirement Savings: A New Era for Older Workers
As millions of Americans struggle to save for retirement, a glimmer of hope emerges on the horizon. The Secure Act 2.0, enacted by Congress in 2022, brings a wave of changes to the retirement system, aiming to make it easier for older workers to set aside more money. One significant update, set to take effect in 2025, will benefit “max savers” – workers aged 60 to 63.
The Current State of Retirement Savings
A staggering 4 in 10 American workers are behind in their retirement planning and savings, according to a recent CNBC survey. This shortfall is a pressing concern, as many struggle to make ends meet. However, the upcoming changes to 401(k) catch-up contributions offer a beacon of hope.
Higher Catch-Up Contributions Ahead
Currently, employees can defer up to $23,000 into 401(k) plans for 2024, with an additional $7,500 for workers aged 50 and older. Come 2025, workers between 60 and 63 will be able to boost their annual 401(k) catch-up contributions to $10,000 – or 150% of the catch-up limit, whichever is greater. This increased limit has the potential to significantly impact retirement savings.
Who Will Benefit Most?
Certified financial planner Jamie Bosse notes that this change can be a great way for people to boost their retirement savings. While only an estimated 15% of eligible workers made catch-up contributions in 2023, those who do tend to be higher earners. However, even these individuals often have concerns about retiring comfortably.
Removing Upfront Tax Breaks for Higher Earners
Another key change under the Secure Act 2.0 will remove the upfront tax break on catch-up contributions for higher earners. Starting in 2026, these deposits will be made into after-tax Roth accounts, rather than pretax 401(k) accounts. This change applies to workers earning over $145,000 from a single company the prior year.
A Temporary Reprieve
In a welcome move, the IRS has delayed the implementation of this rule until January 2026. This means workers can still make pretax 401(k) catch-up contributions through 2025, regardless of income.
As the retirement landscape continues to evolve, one thing is clear: these changes have the potential to make a significant impact on the savings of older workers. By understanding and taking advantage of these updates, individuals can take a crucial step towards securing their financial future.
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