By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
As we reach the midway mark of the summer season and continue sharing ideas in our Summer Savings Strategies blog series, it’s always fun to chat about something new and impactful. Recent retirement plan legislation, such as The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, continues to reshape the retirement plan industry, offering new opportunities for individuals to strengthen their financial and retirement futures.
While the legislation was massive in scale, there were some central themes running through the regulation, including a focus on enhancing overall employee retirement saving and contribution levels. For example, an exciting provision introduced in SECURE Act 2.0 that becomes effective this year (2025) is generating a buzz within the retirement plan marketplace.
Enhanced Catch-up Contribution Limit for Salary Deferral Plans
Generally, retirement plans that permit elective employee salary deferrals also allow employees age 50+ to make special catch-up contributions, in addition to the annual elective deferral limit. For example, the 2025 age 50+ catch-up contribution limit is $3,500* for a SIMPLE IRA and $7,500 for a 401(k), 403(b) or Governmental 457(b) plan.
Beginning in 2025, select participants in SIMPLE IRA, 401(k), 403(b) and Governmental 457(b) plans have the ability to make an enhanced catch-up contribution to these plans. Specifically, participants ages 60 to 63 can increase their catch-up contribution to $11,250 (instead of $7,500) within 401(k), 403(b) and Governmental 457(b) plans. And for SIMPLE IRAs, participants ages 60 to 63 can increase their catch-up contribution to $5,250 (instead of $3,500). However, there are a few things to keep in mind regarding this new contribution provision:
- Recently proposed regulations have clarified that retirement plans currently offering regular catch-up contributions have the option to also include ages 60 to 63 in the enhanced catch-up contribution but are not required to.
- The enhanced catch-up contribution limit for SIMPLEs, 401(k)s, 403(b)s and Governmental 457(b)s will be indexed for inflation (cost of living adjustment, or COLA) annually.
- Plan participants aged 60 to 63 will not have the ability to utilize both the new enhanced catch-up contribution and the regular age 50+ catch-up contribution, but will need to choose one of the catch-up options to follow.
- Once a plan participant passes age 63 (attains age 64), they will only be eligible to utilize the regular age 50+ catch-up contribution option.
Introducing enhanced catch-up contributions under SECURE Act 2.0 is part of the broader effort of the legislation to encourage more workers to save for retirement. And as we go through the rest of this year, plan sponsors and plan participants will likely start to learn about additional exciting new retirement plan provisions that will impact how workers save for retirement.
Be sure to reach out to your tax advisor to determine if the new enhanced catch-up contribution option is appropriate for you and your tax situation. Consider speaking with your financial advisor for any questions related to the impact of recent legislation on employer retirement plans and retirement savings strategies.
*SECURE Act 2.0 has increased the age 50+ catch-up contribution limit to $3,850 (for 2025) for employers with 25 or fewer eligible employees. Employers with more than 25 employees have the option of permitting the enhanced catch-up contribution for their employees.
Important Disclosures: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards & Co. is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.