Will you be 60, 61, 62, or 63 in 2025? Are you still employed and contributing to your company retirement plan? Then start planning now for the added contribution you may make starting in 2025.
You may be aware that under current law, employees who reach age 50 are permitted to make catch-up contributions to their company retirement plan which exceeds the otherwise applicable limits. In 2023, the maximum contribution to 401(k), 403(b), and 457 plans is $22,500 with an additional $7,500 catch-up contribution for employees aged 50 or older for a total of $30,000. The maximum contribution to SIMPLE IRAs is $15,500 with a $3,500 catch-up for a total of $19,000.
A provision in the recently enacted SECURE 2.0 Act of 2022 increases the catch-up limit starting in 2025 for employees who are ages 60, 61, 62, or 63. Instead of $7,500, the catch-up will be the greater of $10,000 or 150 percent of the 2025 regular catch-up amount for 401(k), 403(b), 457, and Thrift Savings plans. The increase is $5,000 or 150% of the regular catch-up for SIMPLE and SEP IRAs. After 2025, the increased amounts will be indexed for inflation.
If you are approaching retirement and you fear that you do not have enough set aside to retire with the lifestyle you want, the increase in the contribution limit offers the opportunity to play catch-up for four years. The added contribution may mean that you cut back in spending in another area of your life, but if putting more money aside for retirement is one of your priorities, then take advantage of the contribution increase.
Maybe you don’t know if you have enough put away to last through retirement. Then I suggest that you talk to a CERTIFIED FINANCIAL PLANNER ™ professional. A CFP® professional has gone through rigorous training in investment planning, tax planning, retirement planning, estate planning, insurance planning, financial management, and education planning.
They must have a bachelor’s degree, complete a comprehensive exam as well as hours of professional experience. In addition, ongoing education coursework including a CFP Board approved ethics course is required. Each CFP® professional commits to a Code of Ethics and Standards of Conduct to act as a fiduciary, and therefore always act in the best interests of a client. You can find a CFP® professional in your area at the http://www.letsmakeaplan.org website.
Do you intend to take advantage of the increased retirement plan catch-up contributions? Have you established a financial plan for retirement? Are you aware of the CFP® professional designation?