If catch-up contributions are a fantastic way to boost your retirement savings, wait until you hear about “super catch-up” contributions. Just announced on Friday by the IRS, this new provision is set to supercharge retirement savings. Starting in 2025, workers between the ages of 60 and 63 (odd, I know) will have the opportunity to enhance their retirement contributions significantly, thanks to groundbreaking legislation aimed at amplifying the financial security of near-retirees.
Introducing the Super Catch-Up Contribution
For years, catch-up contributions have been a valuable tool for individuals aged 50 and over to accelerate their retirement savings. These additional contributions acknowledge that many people might not have saved enough earlier in their careers due to various life circumstances. That is where the new “super catch-up” contribution comes into play.
Beginning in 2025, if you turn 60, 61, 62, or 63 during the year, you can contribute an extra $11,250 to your workplace retirement plan. This means your total contribution limit could be as high as $34,750 when combining the standard limit with the new super catch-up amount. That’s approximately a 14% increase from previous limits and represents the most substantial change to 401(k) contribution rules in two decades.
Why This Matters
The rationale behind this enhancement is straightforward: to provide a meaningful boost to retirement savings during a critical time. Many of us may have faced challenges that hindered our ability to save consistently—career interruptions, unexpected expenses, or simply not prioritizing retirement early enough. The super catch-up contribution offers a chance to make up for lost time.
Consider this: In Vanguard’s workplace retirement saving plans during 2023, 14% of participants saved the maximum allowed, including catch-up contributions. Notably, many participants approaching retirement age strive to maximize their contributions. This new provision allows eligible individuals to significantly increase their retirement savings during a pivotal time.
Understanding the New Limits
Let’s break down the numbers:
- Standard Contribution Limit: Most workers will be allowed to contribute up to $23,500 to their 401(k) and similar workplace retirement plans in 2025, a $500 increase from this year.
- Regular Catch-Up Contribution: For workers aged 50 to 59 and those 64 and older, the additional catch-up contribution remains at $7,500.
- Super Catch-Up Contribution: For those turning 60 to 63, the catch-up limit increases to $11,250.
- Total Potential Contribution: If you’re in the 60-63 age bracket, you could contribute up to $34,750 annually.
There’s even more good news for workers at companies that have matching or profit-sharing contributions. The total limit, which includes employer contributions and additional after-tax contributions, will rise to $70,000 in 2025. Combined with the super catch-up, individuals in their early 60s could contribute up to $81,250 to their retirement plans.
Making the Most of This Opportunity
Admittedly, reaching these maximum contribution levels requires a significant commitment. For example, a 60-year-old earning $150,000 would need to save about 23% of their salary to max out the standard and super catch-up contributions. However, the long-term benefits are substantial for those who can manage it.
Even if retirement is on your near-term horizon, these increased limits can help bolster your nest egg. Remember, you can start withdrawing from a 401(k) without penalty at age 59½, so maximizing contributions in the years leading up to that can significantly impact your retirement lifestyle.
IRA Contribution Limits Remain Unchanged
While we’re seeing significant changes to 401(k) contributions, it’s worth noting that the contribution limits for Individual Retirement Accounts (IRAs) and Roth IRAs will remain the same in 2025. You can contribute up to $7,000, with an additional $1,000 catch-up if you’re 50 or older.
Seize the Opportunity
Introducing the super catch-up contribution is a valuable opportunity for those in their early 60s to enhance their retirement savings significantly. Whether you’re playing catch-up, want to maximize your financial security in retirement, or wish to defer current taxes, taking full advantage of these increased limits can make a substantial difference.
As always, assessing your specific financial situation to determine the best strategy for your retirement goals is crucial. With careful planning and the new super catch-up provisions, you can set yourself up for a more comfortable and secure retirement.
Economy
- Markets were rocky, with significant volatility on Thursday after disappointing guidance from a few big tech names. The S&P was down -1.4%, the Nasdaq was down -1.5%, and the small-cap Russell 2000 was up 0.1%.
- The U.S. economy added 12K jobs in October, well below a downwardly revised 223K in September and forecasts of 113K.
- The number of job openings fell by 418K to 7.44 million in September from a downwardly revised 7.86 million in August and below market expectations of 7.99 million.
- BEA advance estimates showed the U.S. economy expanded an annualized 2.8% in Q3 2024, below 3% in Q2 and forecasts of 3%.
- U.S. Core PCE prices rose by 0.3% from the previous month in September, the highest gain in five months, following an upwardly revised 0.2% increase in August.
Stocks
- U.S. equities were in negative territory. Real Estate and Utilities led the decline, while Communication Services and Financials outperformed. Value stocks led growth stocks, and small caps beat large caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 13 basis points to 4.36% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
