IRS increases 401(k) contribution limits for 2025

401(k) Limits

Workers who are 60 to 63 will soon have new opportunities to boost their retirement savings through increased 401(k) catch-up contributions. Starting in 2025, eligible workers will be able to contribute up to $11,250 in extra catch-up contributions, in addition to the standard annual deferral limit. Current federal tax law allows individuals aged 50 and older to make additional contributions to their 401(k) or similar employer-sponsored retirement plans.

The standard catch-up contribution limit for 2024 is $7,500. However, beginning next year, thanks to the Secure 2.0 tax law passed in 2022, the limit will rise significantly for individuals in their early 60s. They will be able to contribute an additional $3,750 in catch-up contributions beyond the 2025 general deferral limit of $23,500.

This means eligible workers can potentially contribute up to $34,750 to their workplace retirement accounts annually. This “super” catch-up contribution is specifically available to workers aged 60 to 63.

New catch-up contributions for early 60s

According to Dan Snyder, director of personal financial planning for the American Institute of Certified Public Accountants, eligibility is based on reaching the qualifying age within the calendar year. Once individuals turn 64, they are no longer eligible for the enhanced savings but can continue to make the standard catch-up contributions. The initiative aims to help those close to retirement age accumulate additional savings, especially if they have previously fallen behind in their retirement planning.

“This is an opportunity to make up for mistakes from the past,” said David John, senior strategic policy adviser at the AARP Public Policy Institute, which studies issues relevant to older Americans. Encouraging Americans to save more for retirement remains a critical concern as the population ages and the number of companies offering pensions declines. An analysis by the Economic Policy Institute and the Schwartz Center for Economic Policy Analysis reveals that the typical household headed by people aged 55 to 64 has insufficient retirement savings.

This policy change comes at a time when enhancing retirement security is more important than ever. Older workers now have a more substantial opportunity to bolster their financial readiness for their post-work lives.

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