What exactly is a ‘super catch-up’ contribution?

Q:

OK, I know the new year usually brings with it new contribution limits for retirement accounts. And I know that you get an extra catch-up amount if you are 50 or older. But I recently heard about a “super catch-up” contribution for 2025. Is that real, and if so, how much is it?

A:

Absolutely, it’s very much a reality! Kudos to you for staying informed about the evolving rules and regulations surrounding retirement contributions. The super catch-up is just one of several significant changes coming in 2025 as part of the SECURE Act 2.0. Let’s dive into some of the key updates you should know about.

Higher 401(k) catch-up contribution limits

Standard 401(k) contribution limits will increase from $23,000 to $23,500 in 2025. The catch-up amount for participants who are 50 or older will remain at $7,500. But thanks to SECURE Act 2.0, participants aged 60 to 63 will have a higher catch-up contribution limit, sometimes referred to as a super catch-up, of $11,250.

Changes to IRA contribution limits

Unfortunately, the contribution limit for an individual IRA will remain at $7,000 in 2025. And even though the SECURE Act 2.0 amended the catch-up contribution limit for individuals aged 50 and over to include an annual cost-of-living adjustment, it will still stay at $1,000 for 2025.

Individuals can still deduct contributions to a traditional IRA if they meet specific criteria. However, if either the individual or their spouse has a workplace retirement plan, the deduction may be reduced based on income and filing status.

This is known as a “phase out,” and for 2025, the income range for individuals will change from between $77,000 and $87,000 to between $79,000 and $89,000. For married couples, that range goes from between $123,000 and $143,000 to between $126,000 and $146,000.

Modified retirement plan rules

In 2025, long-term part-time workers who were previously excluded from 401(k) and Employee Retirement Income Security Act-covered 403(b) plans may now participate if they have worked at least 500 hours in two consecutive years and are at least 21 years old by the end of that period.

In addition, all employees will automatically be enrolled in their employers’ 401(k) or 403(b) plans if it was established after Dec. 29, 2022. The initial contribution rate will be set between 3% and 10% of the employee’s salary and it will automatically increase by 1% annually until it reaches a maximum of 15%. Employers must give their employees the choice to opt out of enrollment.

Conclusion

Thanks to the SECURE Act 2.0, there are several important changes that you need to be aware of in 2025. By staying informed and working with financial and tax professionals, you can navigate these rules effectively and make the most of your retirement planning strategies.

If you have any further questions or need personalized advice, don’t hesitate to reach out to your planner. They are there to help you make the best decisions for your financial future.

WE HOPE YOU’VE FOUND THIS INFORMATION HELPFUL

Remember that any financial guidance must be adapted to your unique circumstances, so consult your financial planner. In the meantime, keep those questions coming!