Understanding Retirement Catch-Up Contributions in 2024

Posted on Aug 25, 2023

The SECURE 2.0 Act, signed into law in December 2022, includes measures aimed at simplifying the process for Americans to build their retirement savings. Those provisions allow people nearing retirement age to make additional catch-up contributions to their 401(k) accounts. For example, in 2023, individuals over age 50 can contribute $7,500 in addition to the $22,500 allowed, totaling $30,000.

In 2024, there are changes to the catch-up contribution rules to 401(k) plans under SECURE 2.0. Specifically, individuals who are at least 50 years old and earning more than $145,000 in the previous calendar year can make catch-up contributions to their 401(k) plan, but only on a Roth basis. Unlike traditional 401(k) accounts in which taxes are deferred until retirement, contributions to a Roth are after-tax. The benefit is that these funds can be withdrawn tax-free upon retirement. It’s important to note that the SECURE 2.0 Roth catch-up contribution rule won’t apply to taxpayers making $144,999 or less in a tax year. They will be permitted, but not required, to elect a Roth contribution.

Another important change concerns catch-up contributions in 2025. Starting in 2025, there is a new special catch-up contribution for taxpayers who are between ages 60 – 63 and who have 401(k), 403(b) and governmental 457(b) plans This new contribution limit will be equal to (1) $10,000 or (2) 50% more than the regular catch-up contribution for 2024. (whichever is greater).  The $10,000 limit will also be indexed for inflation beginning in 2026. Once the taxpayer reaches age 64, the regular (lower) catch-up contribution limit will apply.

Making catch-up contributions can be highly advantageous for older Americans, especially for those who find themselves behind in their retirement savings goals due to life events and other financial responsibilities. Catch-up contributions provide the opportunity to bridge this gap and boost the growth of retirement savings, provide tax benefits by reducing taxable income (if not made on a Roth basis), and ultimately help individuals achieve a more comfortable, financially secure retirement.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.