What’s New for Boomers

Answer: Yes, you’re right, there are significant changes to retirement savings regulations brought about by the SECURE 2.0 Act (Setting Everyone Up for Retirement Enhancement). Starting this year, Baby Boomer workers aged 60 to 63 can enhance retirement savings with “super” catch-up contributions under new rules created by the IRS last year as part of a package of inflation adjustments to retirement account contributions. This not only applies to Individual Retirement Accounts (IRAs), but also to 401(k), 403(b), government 457(b) and SIMPLE IRA (Savings Incentive Match Plan for Employees) plans that already offer catch-up contributions.

If you meet certain criteria, this is a fabulous opportunity to boost your retirement contributions as you approach retirement age. Those eligible can add $11,250 per year to their 401(k) accounts (up for the regular catch-up contribution of $7,500), increasing their overall annual contribution limit to $34,750.

Profound impact

These changes are one of the biggest improvements in 401(k) contribution rules in 20 years. If you’re a Boomer between the ages of 60 and 63 and are saving for retirement with a 401(k), these updates allow you to contribute about 14% more than in 2024 (2% of this increase is due to a cost-of-living adjustment, or COLA, that is often applied to contribution limits). The standard 401(k) limit for 2025 is $23,500, with a regular catch-up for those 50 and older of $7,500, meaning the "super catch-up" represents an additional $3,750 for qualifying participants. Once a participant turns 64, they revert to the age 50 and older (or +) catch-up contribution limit in effect for that year. If you’re between 60 and 63 years old and still working, be sure to take advantage of these opportunities to help save for your future.

The higher limit can help older Americans to strengthen and fortify their retirement funds. Higher earners who have the financial means available to maximize their savings are able to benefit the most from the adjustment.

"Super catch-up" contributions can be made to either traditional pretax 401(k) accounts or Roth 401(k) accounts if your employer currently offers the option. Pretax contributions to 401(k) accounts reduce current taxable income, while Roth contributions – which require that taxes be paid upfront – allow funds to be withdrawn tax free. This may change next year, however, as all catch-up contributions will be required to go into Roth accounts for individuals with income above a certain threshold under another provision of SECURE Act 2.0, unless the delay in implementation is extended further.

There are some hurdles to taking advantage of the new rules. Not all retirement plans can accommodate the new contribution limits, and your company’s payroll system needs to be aligned with retirement-plan administration. It’s important to check with your plan administrators to understand how your specific retirement plan handles "super catch-up" contributions and any potential matching.

Things to Remember

401(k) plans and Roth 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings from a 401(k) plan will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Contributions to a Roth 401(k) are never tax-deductible, but if certain conditions are met, distributions will be completely income tax free. Roth 401(k) participants are subject to required minimum distributions at age 72 (70 ½ if you reached 70 ½ before January 1, 2020).

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While familiar with the tax provisions of the issues presented herein, as a Financial Advisor of Raymond James, I am not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Thinking ahead

If you are interested in taking advantage of the "super catch-up", it’s a good idea to plan ahead as much as possible. Those who are turning 60 before the end of a tax year can begin contributing at age 59, as long as they meet the other requirements. Conversely, if you turn 64 within the tax year, you will need to revert to the regular catch-up limits.

To help you navigate the complexities and ensure you are maximizing your benefits while adhering to the new rules, consult your CERTIFIED FINANCIAL PLANNER® Professional. She or he can provide guidance on how these changes can fit into your overall retirement strategy and align with your long-term financial goals. Stay focused and plan accordingly.