Thanks to the SECURE Act 2.0, saving for retirement can be more rewarding for individuals aged 60 to 63 with what has been dubbed as the “super catch-up” contribution. An excellent opportunity to maximize tax-advantaged savings, the super catch-up contribution can enable eligible participants to make the most of their employer-sponsored retirement plans.

What is the Super Catch-up Contribution

The super catch-up has a higher threshold than the standard catch-up contribution. Beginning in 2025, eligible individuals between 60 and 63 can allocate the greater of $10,000 or 150% of the regular catch-up contribution limit to their 401(k), 403(b), or governmental 457(b) plans. The regular catch-up limit in 2025 is $7,500, bringing the super catch-up to $11,250.

Formula: $7,500 x 150% = $11,250

The threshold will adjust annually for inflation, providing savings opportunities that are financially proportionate to the times.

Benefits of Super Catch-Up Contributions

• Increased Savings: Participants can contribute more during their later pre-retirement years, which is especially helpful for those unable to max out their contributions previously.
• Tax-Advantaged Growth: By contributing to tax-advantaged accounts, individuals can steadily grow their retirement savings and reduce their tax liability.
• Flexibility: Super catch-up contributions are an optional feature of plans that already allow catch-up contributions. Employers must opt into the program. Individuals whose employers offer them have the flexibility to make standard, catch-up, and super catch-up contributions as they see fit.

Understanding Monthly Contribution Options

Contributions to employer-sponsored retirement accounts are tax-deferred, meaning the funds grow tax-free until withdrawals begin in retirement. The threshold the IRS sets annually on retirement account contributions is also known as the deferral limit, designating how much salary individuals can allocate each year tax-deferred toward retirement. Maximizing regular and super catch-up contributions can significantly impact retirement savings. Here’s an example of how monthly contributions to retirement accounts can look when making the most of these benefits.

Note: Individuals should confirm with their human resources representative or plan administrator whether super catch-up contributions are available to them.

Changes for High-Income Earners (HIEs)

The SECURE Act 2.0 also introduced new requirements for those earning more than $145,000 annually beginning in 2024. Earners above the threshold must now make catch-up contributions on a Roth basis, which consists of after-tax dollars. This promotes tax-free growth and withdrawals in retirement. However, the IRS has implemented a two-year transition period, postponing the enforcement of this provision until 2026, affording high-income earners ample time to adjust their savings strategies.

What Should You Do?

• If you are between ages 60 and 63: If you are financially able, take advantage of the limited-time opportunity to increase retirement savings exponentially through super catch-up contributions. The additional contributions can boost savings and be especially helpful for those behind in their retirement-saving goals.
• If you are a high-income earner: Assess whether pre-tax or Roth contributions align better with your financial goals. If you expect a lower tax rate in retirement, contributing pre-tax via standard catch-up protocols might be most advantageous to you (while you still can). Higher tax rates in retirement can be mitigated through Roth contributions.
• If you plan to retire soon: Discuss potential strategies with a financial advisor to ensure you are making the most of catch-up contributions and other retirement-saving opportunities.

Steps Toward Maximizing Catch-Up Contributions:

1. Verify eligibility: Ask your plan administrator if they offer the super catch-up contribution.
2. Adjust contributions: Make the appropriate changes to your plan to take full advantage of increased limits.
3. Consider tax implications: Assess how Roth contributions could impact your long-term strategy.
4. Consult a financial advisor: Contact a financial advisor to develop a personalized savings strategy that includes catch-up contributions where applicable, tax-saving approaches, and best practices for growing and protecting your wealth.

The super catch-up contribution is a powerful way for individuals to feed their savings in those final critical years before retirement. Any eligible individual should explore whether the opportunity is available to them and take advantage of it.  If you are nearing retirement and want to know more about leveraging catch-up contributions or improving your strategy, contact SHP Financial for a complimentary review of your finances today.

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