They say you get better as you get older. This could just be it true for 401(k) plans in 2025 for those walking into their golden years. Retirement planning just got a significant boost for Americans ages 60 to 63, thanks to provisions of the SECURE 2.0 Act.

From 2025, people in this age group will be eligible for what is called a ‘super catch-up’ contribution limit for employer-sponsored retirement plans, including 401(k)s. This exciting change, recently clarified by the IRS, offers a unique opportunity to accelerate your retirement savings during these crucial pre-retirement years.

The basics: recovery contributions

Catch-up contributions allow people aged 50 and over to save extra money for retirement beyond standard contribution limits. For 2024, the catch-up contribution limit was $7,500, in addition to the $22,500 annual contribution limit for 401(k) and similar plans. These additional contributions are designed to help older workers close any retirement savings gaps they may have built up over the years.

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Presentation of the super update

Under the SECURE 2.0 Act, people aged 60, 61, 62 and 63 can contribute even more to their retirement accounts starting in 2025. The new “super catch-up” limit will be the greater of $10,000 or 150% of the usual catch. -Upward contribution limit for the given year, adjusted annually for inflation. At 64, you go to the usual recovery.

401(k)s just got a little better for those ages 60 to 63, thanks to new catch-up provisions. (Reuters)

For example, if the usual catch-up contribution in 2025 remains at $7,500, the excess limit would increase to $11,250 (150% of $7,500). If the $10,000 floor is adjusted for inflation, it could rise even further, allowing individuals to add substantially more to their retirement savings.

Why is this important?

This improvement comes at a crucial time for many people. Those in their 60s are often at the peak of their earning potential, with more income available to save. At the same time, they are fast approaching retirement and may feel pressure to bolster their nest eggs. Super catch-up offers a golden opportunity to overcome any shortfall and strengthen your financial security.

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Moreover, this provision aligns with the reality that many Americans are living longer. Increasing your retirement savings can help ensure a more comfortable and secure retirement in the face of rising health care costs, inflation and other financial challenges.

Key considerations

To make the most of the super catch-up, it’s essential to plan strategically:

1. Assess your budget: Make sure you have the financial flexibility to maximize contributions. It may be necessary to cut unnecessary expenses or reallocate resources.
2. Consult a financial advisor: Professional guidance can help you optimize your savings strategy, taking into account tax implications and long-term goals. A good place to start is output wealth to learn more about this technique.
3. Understand the tax implications: Contributions to traditional 401(k)s will be tax-deferred, reducing your taxable income now, but taxable during retirement withdrawals. Think about how this fits into your overall tax strategy and whether a regular 401(k) or a Roth 401(k) makes more sense for your situation.
4. Stay informed: Stay tuned for annual updates from the IRS on contribution limits and inflation adjustments.

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Super catch-up offers a golden opportunity to overcome any shortfall and strengthen your financial security.

A new era of retirement savings

The super recovery contribution is a testament to the growing focus on improving Americans’ retirement preparedness. By taking advantage of this opportunity, 60-63 year olds can significantly increase their retirement savings, potentially reduce their overall tax liability and provide greater peace of mind as they move into their golden years.

If you’re approaching this age bracket, now is the time to review your retirement strategy and prepare to make the most of this exciting new provision. Retirement is a journey, and with super updates, you can make sure yours is as safe and fulfilling as possible.

Ted Jenkin is president of Advisors left exit stage and partner a Exit from wealth.

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