Retirement Savings Get a Boost: New 401(k) Catch-Up Limits for 2025
A New Era for Retirement Savings
The SECURE 2.0 act, signed into law by President Joe Biden in 2022, has brought significant changes to retirement savings rules. One of the most notable revisions is the introduction of a new hyper-focused catch-up limit for 401(k) plans, starting in 2025. This change will allow certain individuals to save more money for retirement, but it may also cause confusion among those eligible.
Who Benefits from the New Catch-Up Limit?
Individuals aged 60, 61, 62, and 63 who participate in 401(k) plans at work will be able to take advantage of the new catch-up contribution limit in 2025. This means that if someone turns 60 in September 2025, they can contribute up to $34,750 in a 401(k) plan that year. The higher catch-up contribution limit for this age group is $11,250, which is $3,750 more than the ordinary $7,500 catch-up limit that starts to apply in the year a saver turns 50.
Understanding the New Contribution Limits
The Internal Revenue Service (IRS) has announced that individuals can contribute up to $23,500 to their 401(k) plans in 2025, an increase of $500 from the 2024 limit. Catch-up contributions, if you qualify, allow you to save even more than that initial limit. There’s a maximum $7,500 catch-up contribution for one group of older workers, and a maximum $11,250 catch-up contribution for another group. The total possible contribution allowed in a 401(k) plan is $34,750 for those aged 60 through 63 in 2025.
Employer Participation and Roth Contributions
Employers will need to offer these new catch-up contribution limits to their workers next year. Fidelity Investments expects that the majority of plan sponsors will offer the increased catch-ups. Additionally, beginning in 2026, employees earning $145,000 or more each year will be required to make any of their catch-up contributions into a Roth 401(k). This means they won’t receive an upfront tax break for those extra contributions.
Is Saving $34,750 Realistic?
While saving $34,750 for retirement may seem daunting, it’s not just high-income earners who can take advantage of this opportunity. Those with few bills and little debt, such as empty nesters who have paid off their mortgages, may also be able to save more for retirement. Financial advisors recommend assessing your budget and priorities to determine if maxing out your retirement savings is feasible.
Seeking Professional Guidance
With the new catch-up limits and Roth contribution requirements, it’s essential to consult with a financial advisor to determine the best approach for your individual situation. By understanding the changes and planning accordingly, you can make the most of this opportunity to boost your retirement savings.
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