The Internal Revenue Service (IRS) has rolled out revisions regarding retirement savings for workers, following the enactment of the SECURE 2.0 Act in 2022. A particularly noteworthy change benefits individuals aged 60 to 63, allowing them to substantially boost their contribution levels. Historically, workers aged 50 and above have been entitled to make extra “catch-up” contributions to their retirement plans—set at $7,500 for the years 2024 and 2025.
In addition, there is now a “super” catch-up contribution of up to $11,250 available for those in the 60 to 63 age group. This new provision enables workers within this age range to amass a total of $34,750 in 2025 by combining regular and super catch-up contributions. The increased limits for catch-up contributions are designed to assist older Americans who are approaching retirement, giving them an opportunity to save more as they get ready to exit the workforce.
For individuals who may have struggled to save earlier due to lower wages or financial responsibilities such as parenting, this represents a critical opportunity to enhance their retirement savings. Nevertheless, this improved savings option is temporary; when individuals turn 64, the contribution limit defaults back to the regular cap, which is projected to be $31,000 in 2025.
Will this be beneficial for the majority?
IRS Retirement Updates Encourage Saving
Unfortunately, the answer may be no.
Considering this is a substantial amount to set aside, only those with the financial means will likely reap the benefits. Typically, individuals who can maximize their contributions are already positioned to do so. The real issue pertains to those who find it challenging to meet even the original contribution levels, let alone additional ones.
The Economic Policy Institute (EPI) reports that 57.2% of employees close to retirement are contributing to their employer-sponsored retirement plans, leaving over 40% of this demographic without any contributions whatsoever. Furthermore, EPI data indicates that more than a third of workers aged 55 to 64 did not have access to an employer-sponsored retirement savings plan as of 2019. Amid mortgage obligations, transportation expenses, and everyday costs, many who invest in retirement accounts find it difficult to increase their savings.
While the new regulation may not address every obstacle, it remains crucial for those who can contribute the maximum allowable amounts, including the super catch-up contributions, to actively do so. Attaining this financial self-sufficiency can lessen dependency on Social Security during retirement. For individuals who are unable to contribute significantly to their retirement funds, even setting aside a small amount for investment growth and curbing expenses can facilitate some degree of savings for the future.
