If you’re 60, the new 401(k) rules could save you money

They say you get better as you get older. This could just be it true for 401(k) plans in 2025 for those walking in their golden years. Retirement planning just got a significant boost for Americans aged 60 to 63, thanks to provisions in the SECURE Act 2.0.

Beginning in 2025, individuals in this age group will be eligible for something called a “super catch-up” contribution limit for employer-sponsored retirement plans, including 401(k)s. This exciting change, recently clarified by the IRS, provides a unique opportunity to accelerate your retirement savings during these crucial pre-retirement years.

The basics: Catch-up contributions

Catch-up contributions allow individuals age 50 and older to save extra money for retirement beyond standard contribution limits. For 2024, the catch-up contribution limit was $7,500, in addition to the maximum $22,500 annual contribution for 401(k)s and similar plans. These additional contributions are designed to help older workers close any retirement savings gaps they may have built up over the years.

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Introducing the super catch-up

Under the SECURE 2.0 Act, individuals ages 60, 61, 62 and 63 can contribute even more to their retirement accounts starting in 2025. The new “super catch-up” limit will be the largest of $10,000 or 150% of the regular catch. -The contribution limit for the given year, adjusted annually for inflation. At 64, go to the regular catch-up.

401(k)s are only slightly better for those aged 60-63, thanks to new catch-up provisions. (Reuters)

For example, if the regular catch-up contribution in 2025 remains at $7,500, the super catch-up limit would increase to $11,250 (150% of $7,500). If the $10,000 plan is adjusted for inflation, it could rise even higher, allowing individuals to add substantially more to their retirement savings.

Why is this important?

This improvement comes at a crucial time for many people. Those in their early 60s are often at the peak of their earning potential, with more disposable income available to save. At the same time, they are quickly approaching retirement and may feel the pressure to replenish their nest eggs. Super catch-up offers a golden opportunity to fill any shortfall and strengthen their financial security.

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Additionally, this provision aligns with the reality that many Americans are living longer. Increasing retirement savings can help ensure a more comfortable and secure retirement in the face of rising health care costs, inflation and other financial challenges.

Key considerations

To take advantage of the super catch-up, it is essential to plan strategically:

1. Evaluate Your Budget: Make sure you have the financial flexibility to maximize contributions. Cutting unnecessary expenses or reallocating resources may be necessary.
2. Consult a Financial Advisor: Professional guidance can help you optimize your savings strategy, taking into account tax implications and long-term goals. A good place to start is get out wealth to learn more about this technique.
3. Understanding the Tax Implications: Contributions to traditional 401(k)s are tax-deferred, reducing your taxable income now, but subject to taxes during retirement withdrawals. Consider how it fits into your overall tax strategy and whether a regular 401(k) or Roth 401(k) makes more sense for your situation.
4. Stay informed: Keep an eye on the IRS’s annual updates regarding contribution limits and inflation adjustments.

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Super catch-up offers a golden opportunity to fill any shortfall and strengthen their financial security.

A new era of retirement savings

The super catch-up contribution is a testament to the growing emphasis on strengthening retirement preparation for Americans. By taking advantage of this opportunity, individuals ages 60 to 63 can significantly increase their retirement savings, potentially lower their overall tax liability, and provide more peace of mind as they move into their golden years.

If you’re approaching this age bracket, it’s time to review your retirement strategy and prepare to make the most of this exciting new provision. Retirement is a journey, and with super catch-up, you can make sure yours is as safe and complete as possible.

Ted Jenkin is president of Exit Stage Left Advisors and partner to Get out the wealth.

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