The SECURE 2.0 law changes passed in 2022 include a significant new rule impacting employee contributions, which takes effect on January 1, 2025. Employees, employers, investment advisors, and tax advisors should be thinking about what effect this new rule will have on contribution decisions, payroll processing, and retirement planning.
Catch-up contributions are an additional amount that can be contributed over the “regular” 401k or 403b employee contribution limit. The “regular” limit is $23,000 for 2024 but is projected to be $23,500 when the IRS announces, in the next few weeks, the increased 401k and 403b limits for 2025 because of inflation.
Currently, all who are at least age 50 have a catch-up contribution limit of $7,500. This limit is not expected to increase for 2025 when the IRS announces the increased limits. However, in 2025, those who are at least 60 years old but not older than 63 years old will be able to make catch-up contributions up to $11,250. Anyone whose 60th birthday is in 2025 qualifies for the higher limit from January 1st.
You should begin preparing for this change now:
- Your payroll system, which is typically responsible for stopping employees from overcontributing to the 401k plan during the year, will need to be ready to implement this increased limit for those between 60 and 63 years old.
- As the yearend approaches, employees covered by 401k or 403b Plans often re-evaluate how much they are having deducted from pay for contribution to the Plan. Employees who reach age 60 in 2025 and those are between 60 and 63 should be informed about the increased deferral opportunity in 2025.
ACSI is available to answer questions about this change or other questions about your 401k or 403b Plan.
