2025's Big Retirement Savings Boost: What You Need to Know Now

Starting in 2025, the IRS is introducing significant changes to retirement savings plans, particularly benefiting individuals aged 60 to 63. These modifications, part of the SECURE 2.0 Act, aim to enhance retirement readiness by allowing higher "super catch-up" contributions to 401(k) and similar plans.

Understanding Catch-Up Contributions

Catch-up contributions are additional amounts that individuals age 50 and over can contribute to their retirement accounts beyond the standard annual limits. These provisions are designed to help those who may have started saving later or wish to boost their retirement funds as they approach retirement age.

What's Changing in 2025?

Currently, individuals age 50 and above can make catch-up contributions of up to $7,500 to their 401(k) plans. Starting in 2025, a new provision allows those age 60 to 63 to make even larger catch-up contributions. Specifically, the catch-up limit for this age group will increase to $11,250, up from the previous $7,500. This means eligible individuals can contribute a total of $34,750 to their 401(k) plans in 2025, combining the standard contribution limit of $23,500 with the enhanced catch-up amount.

Considerations for High Earners

This change provides a valuable opportunity for individuals in their early 60s to significantly boost their retirement savings. It's important to note that starting in 2026, individuals earning more than $145,000 in the previous year will be required to make catch-up contributions on a Roth basis. This means contributions will be made with after-tax dollars, allowing for tax-free withdrawals in retirement. This provision aims to balance the tax benefits of retirement savings across different income levels.

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What Should You Do?

1. Consult with your Financial Advisor: Discuss with your financial advisor how to adjust your contributions considering the new limits and upcoming Roth requirements.
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2. Review Your Retirement Plan: Assess your current retirement savings strategy to determine how these changes can be integrated to maximize your benefits.
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3. Plan for 2025 Contributions: If you're approaching ages 60 to 63, consider increasing your contributions to take full advantage of the enhanced catch-up limits.

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Conclusion

The upcoming changes to catch-up contributions present a significant opportunity to strengthen your retirement savings. By staying informed and proactive, you can make the most of these new provisions to secure a more comfortable retirement. Please reach out to your Grand Wealth advisor if you wish to discuss if this strategy is right for you.

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_{Sources:
IRS Newsroom: "401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000"
Kiplinger: "New for 2025: 'Super' 401(k) Catch-Up Limits for Ages 60-63"}  

_{Disclosure:
The opinions expressed herein are those of Grand Wealth Management (“GWM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. This article is for informational purposes only and does not constitute investment, legal or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor. GWM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This is not a recommendation to buy or sell a particular security. GWM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about GWM including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.}