If you’re nearing retirement but haven’t quite saved enough to enjoy the retirement you envisioned, there might be some good news coming next year.
With the passing of the SECURE 2.0 Act, Americans who will be 60 to 63 years old during 2025, and are still working, can make “Super Catch-Up” contributions to their 401(k)s, 403(b), governmental 457(b) plans, and certain other retirement accounts. These do not include IRAs.
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GOBankingRates breaks down how these unique contributions work and key signs you should take advantage of them if you’re working in your 60s.
How Super Catch-Ups Work
If you are 60 to 63 anytime before the end of 2025, you can contribute up to an additional $11,250 to your 401(k) account per year until you turn 64.
This Super Catch-Up amount is in addition to the general 2025 contribution limit of $23,500, meaning you can contribute a total of $34,750. When you turn 64, your catch-up limit reverts back to the 50-year-old-and-up limit, currently $7,500.
“The ability to increase contributions starting at age 50 and then to supersize them from 60 to 63 is an amazing opportunity for people to add more to savings and ‘catch up’ from what they have missed putting away when they had to deal with the financial realities of raising a family,” said Chris Orestis, a retirement savings expert and president of Retirement Genius.
He said that in addition to boosting your savings, because 401(k) contributions are withdrawn before taxes, these contributions can lower your tax burden in the year you make them.
Essentially, you are deferring your taxes until a later date, when you withdraw the money and, presumably, your tax bracket is lower.
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Who Should Take Advantage of Super Catch-Ups?
This is a great opportunity to lower your current tax burden and gild your golden years. Here’s who should consider it:
Those Behind in Retirement Savings
Employees who fell behind in their retirement savings but still want to retire fairly soon is who this law was designed for.
“If you are behind on your retirement savings goal, this new Super Catch-Up is a great way to get as much money into your retirement account as you can,” said Jordan Mangaliman, CEO at GoldLine Financial Services.
“This may not completely make up for the lost time you should have or could have invested in the market, but it definitely helps.”
Those for Whom It Is Very Comfortable To Do
For those financially stable enough to make Super Catch-Ups, it’s a green light, said Paul W. Carlson, a certified public accountant (CPA) and managing partner at the Law Firm Velocity.
“If you’re in your early 60s and still working, and you’ve got a decent income, go for it with your eyes closed,” he said. “It’ll help dispel any worries you may be having about affording retirement because it’s quite a big contribution.”
Those Who Want To Lower Their Tax Burden
Sure, you’ll have to pay taxes on your contribution money someday. But if you plan correctly, that someday is when you are in a lower tax bracket.
“As opposed to having to save your retirement money into a savings account or a taxable brokerage account, you are able to invest into your tax-deferred retirement account, which allows your growth to be tax-deferred as well, which further compounds your growth,” said Mangaliman.
Who Should Consider Passing on Super Catch-Ups?
While saving for retirement is vital, not everyone should supersize their catch-up contributions.
Those Who Have High-Interest Personal Debt
One of the major reasons to make Super Catch-Ups is to maximize your investment money and the returns on that money. High-interest debt can kill those gains, however.
“If you currently have high-interest personal debt like credit cards, it may make sense to prioritize paying those off to increase your cash flow,” Mangaliman said.
“Finding a balance between paying off debt and investing in your retirement is a great foundation to financial security.”
Those Who Are Living Paycheck to Paycheck
Again, retirement savings is important, but it takes a back seat to life’s essentials, such as food, shelter, medical, and transportation.
“If you are currently living paycheck to paycheck, then increasing your retirement savings substantially may actually put you in a worse position,” Mangaliman said.
“This can cause you to fall behind on your financial obligations and further into debt.”
The Bottom Line
Whether or not to take advantage of the new Super Catch-Up rule coming in 2025 boils down to a simple test: can you afford it or not?
“This rule mainly benefits higher earners who can afford to stash away more money,” Carlson said. “If you’re making good money and have the ability to save, then go for it.
“But if you’re living paycheck to paycheck, focusing on immediate needs is more important than trying to max out retirement contributions.”
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This article originally appeared on GOBankingRates.com: 3 Key Signs You Should Take Advantage of ‘Super Catch-Up’ Contributions If You’re a Worker in Your 60s
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