Maximize Your 401(k) With A Super Catch Up Contribution!

This week we discuss important changes to 401(k) contribution limits for 2025, particularly for individuals aged 60-63. In 2025, people in this age group will be able to make larger "catch-up" contributions, increasing the maximum amount they can contribute to their 401(k) or 403(b) accounts. The new catch-up limit for these individuals will rise to $11,250, bringing the total contribution limit (including regular deferrals) to $34,750, up from $30,000 in 2024.

We will also discuss some of the complexities introduced by the SECURE Act 2.0, passed in 2022. A key provision of the Act requires highly compensated employees (those earning more than $145,000 in a year) to make catch-up contributions into a Roth 401(k), starting in 2026. However, due to pushback, this rule has been delayed until 2026, leaving the 2025 changes focused on catch-up contributions without the Roth requirement for now. Check with your HR or payroll department to ensure you are taking full advantage of these increased contribution limits, as not all companies may be prepared to implement these changes smoothly or even know about the rules.

In the future, we may see further changes with the potential introduction of SECURE Act 3.0, which could affect these rules down the road. Stay informed and consult with a financial advisor to make the most of these opportunities while they exist!

Resources:

- Alliance of Comprehensive Planners: https://www.acplanners.org

- John's firm website: https://www.trinfin.com

-Find us on Facebook: www.facebook.com/friendstalkfinancialplanning

#ACPMemberWisdom #401k #403b #catchupcontribution #secureact #financialplanning #retirementplanning 

TRANSCRIPT:

Bridget: Hey, John. Some people can save more in their 401(k)s. And this is a special deal just for 2025. Hi, I'm Bridget Sullivan Mermel, and I own a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin. And before we dig into how to save more in 2025 in your 401(k), I want to remind all our viewers to hit that subscribe button. That helps other people find this information on YouTube and helps us grow our reach. And with that, Bridget, looking forward to talking about saving money. This is one of my favorite topics.

Bridget: Yeah, I want to talk first about the facts, then I'll talk about the story behind it, then we can talk more about some more facts. So the facts are that if you are age 60, 61, 62 and 63, you can do an extra catch-up contribution in 2025 to your 401(k) or 403(b). And so, the total amount that you could put in for a catch-up contribution increases to $11,250. And the IRA limit in general for 2025 is $23,500. The total is $34,750. So that is up from the regular catch-up contribution of $7,500, which is available for everybody who's over 50.

John: Man. All these rules to keep track of. We got the over the regular 401(k) deferral, then the over 51, then the special one if you're in your early 60s. I mean, not 65. Yeah, yeah, that's 64.

Bridget: Not 65, not 64. I don't know why.

John: So what's the total amount again? If I'm 62 years old and I want to pack money in, what's the total amount that I can put in in 2025?

Bridget: $34,750.

John: So $34,000 and last year that number was $30,000, right?

Bridget: Around there.

John: Yeah, something like that. So you get a little extra kick. And is it just 2025 or does that go forward from there?

Bridget: Just 2025. So here's the story behind it. The first Secure Act was passed in 2019, then they had the Secure Act 2.0, which I think was passed about two years ago. And so, some of the provisions are just coming into play now. But this one provision was to try to pay for some of the other things that they did with the Secure Act. They were saying that highly compensated employees who were over 50 would have to put their catch-up contributions into a Roth 401(k), not a regular 401(k). And at that time, they said that if you had made $145,000 in the previous year, that would be highly compensated.

At that point then the catch-up contribution would have to go into your Roth 401(k), not your regular 401(k). All right, so this is one of those situations where they pass a law and there's a big outcry because in my experience, probably 80% of the companies didn't even have a Roth 401(k). And the companies that had them were companies run by accountants. There was a big outcry, so it got pushed back. Instead of having to take effect earlier, it got pushed back to 2026.

But this whole extra catch of contribution was still there for the people who are 60, 61, 62, 63. I'm laughing because it's just kind of random. That was still there, so now it's available for the people who are just contributing to 401(k). And the whole put it in a Roth is set to go put it into a Roth 401(k) or 403(b) is set to go into place in 2026. All right. Do you have any questions? What are your thoughts?

John: Wow, the rules that get made up. I mean you think about how the payroll's got to figure these things out and the record keeping. You know I love takeaways. The whole Roth thing is still a thing, but not until 2026. Don't worry about it this year. Next year, if you're in that four-year bracket, in your early 60s, you can put extra money in, you can do the super catch-up, maybe we'll call it that, for next year anyway, and put extra money into it.

And it's one of those things where you should take advantage of what it is. I tend to get frustrated with how these rules get written. And of course, you and I do this for a living. It's part of our job to dig into this for folks. But I tend to think about how regular people who want to do the right things follow these rules. I mean, it just makes it so challenging for people to be able to do the things that they want to and can do. It's unfortunate.

Bridget: Yeah, exactly. It benefits them. Here's the other suspicion that I have. I started my tax practice in 1997, so it's been a while. And I have seen a lot of laws come and go. When there're big outcries and we have a new administration in Washington, they're writing laws even as we speak and then trying to get them passed. And I heard that they're thinking about a Secure Act 3.0 to change some of the things that happened in 2.0. I think this would probably be on their radar, but they got to pay for it somehow.

How are they going to pay for it? That's the big question. So anyway, I'm encouraging people to take advantage of it in 2025. If they're on the fence, do it, because it might just be gone. It might be a one-time only thing. And actually next year, I would probably say it's a 50/50 chance that you will have to put it into a Roth if you're highly compensated. And again, the 2022 number is $145,000, And the $145,000 is individual, not joint.

John: Not joint. Good to know. So it’s not your combined income. Two people making over $100,000 don't fall into that category.

Bridget: And if one spouse makes over that amount and the other spouse doesn't, the second spouse can put in extra…

John: …into the regular.

Bridget: Yeah, into their regular 401(k), because 401(k)s are individual accounts similar to IRA's.

John: Right. Man, keeping track of all this stuff for regular people is just challenging.

Bridget: But that’s why we do our show.

John: Yeah, right.

Bridget: Yeah, for the people who have their antenna up, it's great. But the other thing is that you know if you work for a company who's on top of this stuff. Sometimes you have to complain. I don't know how it's going to work with my 401(k) personally because we've got just a small plan, but I'm going to take advantage of it. I might have to bug my payroll company. We might have to do a little extra work, might take an extra phone call or two because I'm not convinced that every payroll company is going to be aware of this.

John: Right. Two things. One question and one comment. The question I have is if I’m 59 now do I qualify for that next year if I turn 60 in October?

Bridget: I think so, but double check.

John: And again, for some of these rules that they wrote, they’re figuring it out as it goes along.

Bridget: They wrote the rules considering how to pay for it, so they don't want it to cost too much. The budget office tells them how much they think every different permeation will cost and that's why the rules are so weird and arcane.

John: Yeah. So the other thing is how do you know? And I think you said it here before, but what's the takeaway? Be aware that if you are going to be in your early 60s next year that you have this opportunity. And make sure you're talking with HR and your payroll department so that you max that out to the extent that you want to do that, because you can't guarantee that they're going to figure it out for you. And as you said, some companies are really on top of it, and some aren't. And be prepared to have that conversation with folks if your HR payroll is not on top of this. Know what the rules are and know what your rights are to be able to do these things.

Bridget: Absolutely, I agree. So it's a good time to wrap it up. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients. We'd love to hear from you. But if you'd like an advisor in your area who thinks like we do, Bridget and I are both members of the Alliance of Comprehensive Planners, a nationwide group of fee-only planners that are tax focused. If you'd like to find a planner in your area, you can check out acplanners.org.

Bridget: And please subscribe.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.