SECURE 2.0: Increased Catch-up Limits for Employees Aged 60-63

Updated August 28, 2023  

SECURE 2.0 introduced two significant changes to employee catch-up contributions: one requires catch-ups made by high-earning individuals to be Roth (after-tax), and the other increases catch-up amounts for individuals aged 60-63.  

Background

Retirement plans that permit employees to save (defer) a portion of their current earnings for retirement, such as a 401(k) plan or a 403(b) plan, often include a feature allowing employees aged 50 or older to contribute an additional amount, called a catch-up contribution. The annual amount, $7,500 in 20231, is in addition to the maximum deferral limit set for the tax year, $22,500 in 2023.

Plan Years Beginning in 2025

Plan documents may be amended to allow participants aged 60-63 to make higher catch-up deferral contributions. The increased catch-up limit is the greater of $10,000 or 150% of the regular catch-up limit in effect for the calendar year. For example, if the catch-up limit remains at the 2023 level of $7,500, the higher catch-up limit will be $11,250.   Note: employees age 50-59 or 64 and older will be eligible to continue making the regular catch-up contributions as indexed for inflation, $7,500 in 2023. The higher catch-up limit for employees 60 to 63 is optional and will require a plan document amendment.

Summary:

  • Beginning on January 1, 20262, catch-up deferral contributions may only be made as Roth, except for employees with 2025 compensation of $145,000 or less. This is a mandatory change.
  • The plan document must include a Roth feature to continue allowing catch-up contributions.
  • Employers must work with their service providers to review their plan documents, align their payroll systems, communicate the new rules to employees, and confirm implementation with plan investment platforms.
  • Higher catch-up amounts for employees aged 60-63 in 2025 is an optional provision; its implementation will require a plan amendment.
  • Further guidance and clarification by the IRS is expected.

Let Pinnacle Plan Design Help

Consultants at Pinnacle Plan Design are actively monitoring new guidance concerning SECURE 2.0. This represents our understanding of the laws at this time. Additional guidance will provide additional clarity. If you have any questions about the rules changing catch-up contributions in your retirement plan, don’t hesitate to contact us at (520) 618-1305.

  1. View current contribution limits ↩︎
  2. Originally, this provision was effective for tax years beginning 1/1/2024 and later.  However, in Notice 2023-62, published on Aug 25, 2023, the IRS delayed the effective date of this requirement to 2026. ↩︎
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