FIDUCIARY INSIGHTS: GUIDE TO CORPORATE RETIREMENT PLANS – 004
Big Changes Coming for Retirement Savers - New 401(k) Catch-Up Provisions (Part 2)
Jeff J. Kim
As someone who has spent years helping clients plan for retirement, I know how crucial it is to maximize every savings opportunity. One of the most effective tools for older workers has been catch-up contributions to their 401(k) plans. With the recent passage of the SECURE 2.0 Act, we're about to see some major shifts in how these catch-up provisions work, especially for high earners. These changes will impact millions of Americans trying to bolster their retirement savings in their later years.
Let me walk you through what’s happening, what it means for your future, and how to take full advantage of these new rules.
What Are 401(k) Catch-Up Contributions?
First, a quick refresher. If you're 50 or older, the IRS gives you an opportunity to contribute beyond the regular 401(k) limit, called catch-up contributions. For instance, in 2024, the regular limit for 401(k) contributions will be $23,000. For those 50 and up, there’s an additional $7,500 you can contribute, bringing the total to $30,500.
These extra contributions are essential for those who haven’t saved enough during their earlier working years. Catch-up contributions allow people in the final stretch of their careers to sock away extra money for retirement. It’s an important tool, especially with life expectancy increasing and healthcare costs continuing to rise.
What’s Changing Under SECURE 2.0?
The SECURE 2.0 Act is one of the most comprehensive retirement reforms we’ve seen in years. It’s designed to help people save more, but it’s also bringing in some big changes that may impact how you think about your 401(k) contributions. Here are the most critical changes to know about:
Higher Catch-Up Limits for Ages 60-63: This is a huge win for savers. Starting in 2025, if you're between 60 and 63, you’ll be able to contribute the greater of $10,000 or 150% of the regular catch-up contribution amount. In real terms, this could mean thousands of extra dollars flowing into your 401(k) every year, especially if inflation keeps pushing the limits higher.
For those in this age range, this is a great opportunity to supercharge your retirement savings right before you hit the finish line of your career.
Mandatory Roth Catch-Up Contributions for High Earners: This is where it gets a little tricky. Starting in 2026, if you make over $145,000 in wages (adjusted for inflation), any catch-up contributions you make to your 401(k) will have to go into a Roth account. This means no more pre-tax savings for catch-up contributions for high-income earners. You'll have to pay taxes on those contributions upfront.
But there’s a silver lining. While Roth contributions are taxed on the front end, they grow tax-free, and when you withdraw them in retirement, they’re also tax-free. For high earners, this change might not be ideal in the short term, but it could be a smart long-term strategy if you expect to be in a high tax bracket during retirement.
Traditional Catch-Up Contributions for Non-High Earners Remain: For those earning less than $145,000, it’s business as usual. You’ll still be able to make traditional pre-tax catch-up contributions, reducing your taxable income today. This is especially beneficial for middle-income earners who want to keep their tax burden low while building their retirement savings.
What Does This Mean for You?
There’s no question that these changes will affect how you plan for retirement, especially if you’re nearing retirement age. Here’s what I recommend you consider:
If You’re a High Earner
Start thinking about Roth contributions: This mandatory shift to Roth contributions for catch-up dollars means you'll need to adjust your strategy. It’s time to start thinking of the tax benefits of Roth accounts in retirement, where withdrawals are tax-free.
Max out your contributions: With the new higher catch-up limits starting in 2025, you can put even more into your 401(k). If you’re in that 60-63 window, be sure to take full advantage of the larger limits and max out your contributions.
If You’re Not a High Earner
Keep doing what you’re doing: You’ll still be able to make pre-tax contributions, lowering your tax bill today. But with inflation on the rise and potential tax changes down the road, it might make sense to explore whether some Roth contributions are a good option for your overall strategy.
For Everyone
Talk to a financial advisor: Navigating these changes can be complex, and it’s important to build a strategy that fits your specific situation. A good financial advisor can help you balance short-term tax implications with long-term retirement goals.
The new catch-up contribution rules in SECURE 2.0 are designed to help Americans save more for retirement, but they also introduce some complexities—especially for high earners. While the Roth shift might feel like a burden in the short term, the long-term tax benefits can really pay off. On the flip side, for those who don’t fall into the high-earner category, the traditional pre-tax benefits remain and the ability to supercharge contributions between ages 60 and 63 is a huge bonus.
At the end of the day, your retirement savings strategy should be as personalized as possible. Whether you’re a few years away from retirement or just getting started, these changes are an opportunity to take stock of your plan and make adjustments to ensure a financially secure future.
Gerber Kawasaki Wealth & Investment Management is an investment advisor located in California. Gerber Kawasaki Wealth & Investment Management is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Gerber Kawasaki only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Gerber Kawasaki Wealth & Investment Management 's current written disclosure brochure filed with the SEC which discusses, among other things, Gerber Kawasaki Wealth & Investment Management's business practices, services and fees, is available through the SEC's website at: http://www.adviserinfo.sec.gov .
Jeff Kim is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$3.16B billion in assets under management as of 9/30/24. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."
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