Many Americans are facing a retirement savings shortfall, but new legislation passed by Congress in 2022, known as the Secure Act 2.0, aims to improve the retirement system. This includes updates to 401(k) plans, required withdrawals, and 529 college savings plans. While some changes have already taken effect, one key change for “max savers” will begin in 2025, allowing workers aged 60 to 63 to boost annual 401(k) catch-up contributions to $10,000 or 150% of the catch-up limit, whichever is greater.
A CNBC survey found that 4 in 10 American workers are behind in retirement planning and savings, highlighting the importance of these changes. Higher 401(k) catch-up contributions can help certain savers, particularly higher earners and those with significant account balances. While employees can currently defer up to $23,000 into 401(k) plans for 2024, with an additional $7,500 for workers aged 50 and older, the new rules starting in 2025 will provide further opportunities to boost retirement savings.
According to experts, the new rules on catch-up contributions can be a great way for people to increase their retirement savings. The ability to contribute more to their 401(k) plans can help older workers who may be concerned about retiring comfortably. While only 15% of eligible workers made catch-up contributions in 2023, those who did tended to be higher earners. With the new rules taking effect in 2025, more workers may take advantage of this opportunity to save more for retirement.
In addition to higher 401(k) catch-up contributions, another change introduced by the Secure Act 2.0 is related to Roth catch-up contributions. This change will remove the upfront tax break on catch-up contributions for higher earners by only allowing deposits in after-tax Roth accounts. Workers who earned more than $145,000 from a single company the prior year will be affected by this rule. However, the IRS has delayed the implementation of this rule to January 2026, allowing workers to make pretax 401(k) catch-up contributions through 2025, regardless of income level.
The Secure Act 2.0 aims to address the retirement savings shortfall faced by many Americans by introducing changes to retirement savings plans and catch-up contribution limits. These new rules, set to take effect in 2025, will give workers aged 60 to 63 the opportunity to contribute more to their 401(k) plans, potentially boosting their retirement savings. With a significant number of American workers falling behind in retirement planning and savings, these changes are intended to help people better prepare for their financial future and retirement. By providing additional opportunities to save and invest in their retirement, the Secure Act 2.0 seeks to improve the overall financial well-being of older workers.
