Catch-up contributions to retirement savings accounts like IRAs and 401(k)s just got a boost from the SECURE 2.0 Act, which was signed into law by President Biden on December 29, 2022. That means people approaching retirement age can pack more into their retirement accounts before they actually retire. This is just one of many changes to the way Americans save for retirement and are taxed in retirement included in the legislation, such as adding a government match for retirement plan contributions and relaxing certain required minimum distribution rules.
Currently, if you're at least 50 years old, the catch-up contribution rules let you put more money in your retirement savings accounts than what is normally allowed for the year. This gives people who delayed saving for retirement – or haven't started yet – a chance to "catch up" a bit and bolster their savings before reaching retirement age.
In addition to raising certain catch-up contribution amounts, the SECURE 2.0 Act also permits additional increases each year. This will help people who are able to contribute more build up their nest egg faster. However, some catch-up contributions will soon have to be to Roth accounts. This could make it more difficult for certain people to save more now, but it will result in tax-free withdrawals in retirement. Take a look below at how catch-up contribution have changed, so you can adjust your retirement-saving strategies for the future accordingly. It could save you a lot of money in the long run.
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Catch-Up Contributions to Traditional and Roth IRAs
For 2022, anyone can contribute up to $6,000 to a traditional IRA or Roth IRA (or a total of $6,000 to multiple IRAs). Plus, if you're at least 50 years old, you can squirrel away an extra $1,000 in an IRA – for a total IRA contribution of $7,000 for the year. However, while the base amount is adjusted for inflation each year – it jumps to $6,500 for 2023 – the catch-up contribution amount isn't. It's stuck at $1,000.
The SECURE 2.0 Act unsticks the catch-up contribution amount for IRAs. Starting in 2024, the $1,000 amount will be adjusted annually for inflation just like the base amount. Note, however, that if the inflation adjusted amount is not a multiple of $100, the new amount be rounded down to the next lower multiple of $100. As a result, the $1,000 amount might not rise right away.
Catch-Up Contributions for 401(k) and Other Employer-Sponsored Plans
For 2022, any employee of any age saving for retirement through a 401(k), 403(b), most 457 plans, or the federal government's Thrift Savings Plan can contribute up to $20,500 to their plans ($22,500 in 2023). The 2022 catch-up contribution limit for workers age 50 and up is $6,500 ($7,500 for 2023).
The SECURE 2.0 Act adds a "special" catch-up contribution limit for employees 60 to 63 years of age starting in 2025. In the case of most 401(k) plans and other employer-sponsored retirement plans, the special catch-up contribution maximum for workers 60 to 63 years old is the greater of $10,000 or 150% of the "standard" catch-up contribution amount for 2024. The $10,000 amount will be adjusted for inflation each year starting in 2026.
Starting in 2024, the SECURE 2.0 Act also requires all catch-up contributions for workers with wages over $145,000 during the previous year to be deposited into a Roth (i.e., after-tax) account. The wage threshold will be adjusted annually for inflation beginning in 2025 (rounded down to the lowest multiple of $5,000).
In addition, the new legislation authorizes "starter 401(k) plans" for employers with no retirement plan beginning in 2024. Generally, this would require all workers to be enrolled in the plan by default with a 3% to 15% employee contribution rate. A $1,000 catch-up contribution is also allowed for workers who are at least 50 years old participating in the starter 401(k) plan (the $1,000 amount will be adjusted annually for inflation).
Catch-Up Contributions for SIMPLE Plans
The 2022 contribution limit for a SIMPLE IRA or 401(k), which are retirement plans designed for small businesses with 100 or fewer employees, is $14,000 ($15,500 for 2023). The catch-up contribution limit for workers at least 50 years old who participate in a SIMPLE plan is $3,000 for 2022 ($3,500 for 2023).
Starting in 2024, the catch-up contribution limit for a SIMPLE plan is increased by 10%. In addition, as with 401(k) and other employer-sponsored plans, the SECURE 2.0 Act creates a new SIMPLE plan catch-up contribution limit for people who are 60 to 63 years old. Beginning in 2025, the new limit for that group is equal to the greater of $5,000 or 150% of the 2025 catch-up contribution amount for other eligible workers. The new amount for this special age group will also be adjusted annually for inflation after 2025.
More on the SECURE 2.0 Act
The SECURE 2.0 Act, which includes several provisions concerning retirement savings, is part of a larger government spending bill signed by President Biden on December 29, 2022.
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