Authored by: Dale Shaw, CFP®, RICP®
Beginning in 2025, the annual contribution limits to 401(k) plans, 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan will increase to $23,500. The age 50+ catch up contribution will be $7,500. Also, the SECURE 2.0 Act introduces a higher catch up contribution for those between the ages of 60-63 bringing their catch up contribution limit to $11,250. This change offers a unique opportunity for employees and corporate executives in this age group to bolster their retirement savings even more.
For those who participate in SIMPLE plans, those plan contribution limits are as follows: $16,500 plus age 50+ catch up contribution of $3,850. The SECURE 2.0 Act also introduces a higher SIMPLE plan catch-up contribution of $5,250 for those age 60-63. For employers who have fewer than 25 employees and who agree to certain other matching conditions, these SIMPLE plan limits are $17,600 with $3,850 age 50+ catch up plus age 60-63 catch up being increased to $5,250.
Why This Matters to You
Whether you're revisiting your financial strategy or already have a robust plan in place, understanding and leveraging these higher limits can help ensure a comfortable retirement and allow even more pre-tax deferral bringing the total 401(k) elective deferral limit to $34,750 for those age 60-63.
Key Details of the Higher Catch-Up Contribution Limits
Specific Details
- Eligibility: Individuals aged 60-63 are eligible for the higher catch-up contribution limits.
- Increased Limits: The new legislation allows for increased contributions to IRAs and 401(k)s, providing an opportunity to boost savings during peak earning years.
- Effective Planning: Employees and executives are encouraged to reassess their financial plans to incorporate these new limits, maximizing retirement savings potential.
How to Make the Most of This Opportunity
- Consult With a Financial Advisor: Engaging with a trusted financial advisor is paramount. They can provide tailored insights into how the Secure 2.0 Act can align with your broader financial goals and help craft a strategy that maximizes these benefits.
- Evaluate Your Current Retirement Savings: Take stock of your existing retirement accounts and assess whether you're taking full advantage of the available contribution limits. Consider adjusting your current contributions to meet the new thresholds.
- Consider Tax Implications: Understanding the tax implications of increased contributions is crucial. A financial advisor can help you assess the impact on your taxable income and explore strategies to minimize tax burdens.
- Plan for the Future: Use this opportunity to plan beyond immediate financial needs. Consider how these contributions align with your long-term retirement goals.
Take the Next Step
Many individuals in this age group face uncertainty about whether their retirement savings will suffice. The Secure 2.0 Act's higher contribution limits aim to alleviate this concern by enabling more significant savings during the final working years. By staying informed and proactive, you can mitigate anxiety and establish a robust financial foundation for your retirement years.
If you're ready to explore how the Secure 2.0 Act can enhance your retirement strategy, we invite you to schedule a consultation with our expert advisors. Together, we'll craft a plan that leverages these higher contribution limits to secure your financial future.
References
For further details and official updates on the Secure 2.0 Act and its implications on retirement savings plans, please refer to the following link: TSP Bulletin 24-2.