A penny saved is a penny earned, or so the old saying goes. This is never more true than when you have the opportunity to let that penny grow in the market. The federal government recognized this, which prompted them to enact legislation, the SECURE 2.0 Act, to encourage taxpayers to save more. The SECURE 2.0 Act contains many provisions to help taxpayers build a better retirement, but one key provision to focus on is the increased contribution catch up to 401(k) accounts.
Contribution Basics
First, it is important to understand the basic rules of 401(k) accounts. Employees can elect to defer an amount from compensation up to the lesser of the annual limit set by the IRS or 100% of an employee’s annual compensation for the year. The deferrals are pre-tax, which means the employee will not pay tax on the wages they defer to a 401(k) plan until those funds are removed from the 401(k) plan. Additionally, most employers will match a certain percentage of employee deferrals to incentivize plan participation. Employees who are 50 years of age or older during the calendar year are granted an addition to their annual limit, known as the catch-up contribution limit, that increases the amount they are allowed to defer for the year.
What’s Changing?
The SECURE 2.0 act replaces the normal catch-up amount for taxpayers who are specifically age 60, 61, 62, or 63 for the calendar year. This enhanced catch-up amount, which is being called the super catch-up, is equal to the greater of $10,000 or 1.5 times the amount of the regular contribution catch-up. Taxpayers lose access to the super catch-up when they turn 64 and will revert back to the regular catch-up amounts.
How will this work in practice? The annual deferral contribution amount for 2025 is $23,500 and the catch-up amount for 2025 is $7,500. The below table outlines the available limits.
Contribution Limits
|
Age in 2025 |
Annual Contribution Limit | Catch-Up Contribution Limit | Super Catch-Up Contribution Limit | Total Contribution Limit |
| <50 | $23,500 | – | – | $23,500 |
| 50-59 | $23,500 | $7,500 | – | $31,000 |
| 60-63 | $23,500 | – | $11,250 | $34,750 |
| >63 | $23,500 | $7,500 | – | $31,000 |
The SECURE 2.0 Act has additional rules and regulations relating to catch-up contributions for taxpayers who make $150,000 or more that will begin to take effect in 2026. This emphasizes that this is not a space you can just make one plan and follow it, but a space where you must continuously update your approach to maximize your benefits. Contact one of our Tax Advisors to help maximize your plan going forward.