Stock Trader’s Almanac Editor-in-Chief Jeffrey Hirsch gives his predictions for the 2025 stock market in “Making Money.”
They say you get better the older you get. This could be it applies to 401(k) plans in 2025 for those entering their golden years. Retirement planning just got a significant boost for Americans ages 60 to 63, thanks to the provisions of the SECURE Act 2.0.
From 2025, individuals in this age group will be entitled to 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 those crucial years before retirement.
The Basics: Compensation Contributions
Catch-up contributions allow individuals aged 50 and over to save extra money for retirement beyond the standard contribution limits. For 2024, the reimbursement contribution limit was $7,500, on top of the $22,500 annual limit for 401(k)s are similar plans. These additional contributions are designed to help older workers fill any gaps in retirement savings they have accumulated over the years.
CRYPTO INDUSTRY AWAITS TRUMP’S PICK FOR CFTC CHAIRMAN AS BEHNAM ANNOUNCES EXIT
Introducing super compensation
Under the SECURE Act 2.0, 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 greater of $10,000 or 150% of the regular catch-up contribution limit for a given year, annually adjusted for inflation. At the age of 64, you go for regular compensation.
401(k)s just got a little better for those age 60-63, thanks to new catch-up provisions. (Reuters)
For example, if the regular catch-up contribution remains at $7,500 in 2025, the super catch-up limit will increase to $11,250 (150% of $7,500). If the $10,000 floor is adjusted for inflation, it could rise even higher, allowing individuals to add significantly more to their retirement savings.
Why is that important?
This improvement comes at a crucial time for many individuals. Those in their early 60s often find themselves at the peak of their earning potential, with more disposable income available for savings. At the same time, they are fast approaching retirement and could feel pressure to bolster their nest egg. Super catch-up offers a golden opportunity to bridge all the gaps and strengthen their financial security.
CLICK HERE TO SET FOX BUSINESS IN CRETE
Additionally, this provision is consistent with the reality that many Americans are living longer. Increasing your 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
In order to take full advantage of your super top-up, it’s important to plan strategically:
Constellation Research founder Ray Wang discusses market trends from tech brands like Google and Amazon on ‘Varney & Co.’
- Assess your budget: Make sure you have the financial flexibility to maximize your contributions. It may be necessary to cut unnecessary costs or reallocate resources.
- Consult a financial advisor: Expert guidance can help you optimize your savings strategy, taking into account tax implications and long-term goals. One good place to start is Exit Wealth to learn more about this technique.
- Understand the tax implications: Contributions to traditional 401(k)s are tax-deferred, reducing your taxable income now, but subject to taxes during retirement. 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.
- Stay informed: Follow the IRS’s annual updates on contribution limits and inflation adjustments.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
Super catch-up offers a golden opportunity to bridge all the gaps and strengthen their financial security.
A new era of pension savings
The contribution of super compensation is evidence of the increasing focus on increasing Americans’ readiness for retirement. By taking advantage of this opportunity, individuals aged 60 to 63 can significantly increase their retirement savings, potentially reduce their overall tax liability and provide greater peace of mind as they move into their golden years.
If you’re approaching this age, now is the time to review your retirement strategy and prepare to make the most of this exciting new offering. Retirement is a journey, and with super catch-up, you can ensure yours is as safe and fulfilling as possible.
Ted Jenkin is the president Left exit phase advisors and partner in A way out of wealth.
