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Catch-Up Contributions: Exploring the Effective Retirement Savings Tool

Amid the ever-changing policies around retirement, it’s crucial to stay informed about the latest updates and identify the best strategies to help secure your financial future. 

In recent years, catch-up contributions have gained traction as a means for individuals, especially those nearing retirement, to boost their savings. To make the most of catch-up contributions, it’s essential to be educated about recent changes to legislation and strategies for maximizing catch-up contributions.

SECURE 2.0: Anticipated Changes in 2024

Under current law, anyone 50 or older can make additional catch-up contributions to retirement accounts. For company-sponsored retirement plans (like 401(k)s and 403(b) plans), the catch-up contribution limit is currently $7,500. The SECURE 2.0 legislation set for 2024 brings changes to retirement savings strategies. For example, anyone earning $145,000 or more must treat the catch-up contribution as a Roth contribution.

Changes to Catch-Up Contribution Limits

Starting in 2025, individuals in their 60s – specifically those aged 60, 61, 62, and 63 – will have the chance to make additional catch-up contributions to their retirement accounts. The updated provision allows for catch-up contributions of up to $10,000 or 150% of the regular catch-up contribution amount for their retirement plans that year. For instance, if the standard catch-up contribution amount is $7,500, these individuals could contribute up to $11,250 as part of their catch-up strategy. 

Steps to Take for Catch-Up Contributions

Making catch-up contributions involves planning and adjusting your retirement contributions to ensure you’re taking full advantage of the available opportunities. If you’re contributing to a 401(k), you might need to adjust your elective-deferral contribution rate to accommodate the catch-up contributions. The right timing is important, as contributions must be made throughout the year to reach the desired maximum. 

Strategies for Maximizing Catch-Up Contributions

Collaboration with financial professionals and tax experts may help high-net-worth individuals and others looking to help maximize their catch-up contributions. These professionals may be able to help guide you in calculating your potential contributions, considering factors like bonuses and income levels. Catch-up contribution strategies can vary based on your specific circumstances, so it’s important to consider your options.

Considerations for Retirees and Soon-to-Be Retirees

Retirees and individuals nearing retirement need to approach catch-up contributions strategically. While the ability to contribute more to retirement accounts is valuable, it’s vital to assess your overall financial situation. Evaluate factors such as your expected retirement expenses, other sources of income and your investment portfolio’s risk profile. 

Retirement planning is a dynamic process that requires consistent monitoring and adjustment. A retirement planning professional may be able to help you achieve your retirement goals. Catch-up contributions can help offer a powerful tool to help boost your retirement savings. Recent changes in contribution limits and the upcoming SECURE 2.0 legislation underscore the importance of staying informed. By calculating your contribution limits, and adopting the right strategies, you can make the most of catch-up contributions to help meet your retirement goals. 

Are you interested in ensuring you’re making the most of catch-up contributions? Please reach out to one of our retirement planners to learn more.