A significant change is on the horizon for 401(k) plans that will affect catch-up contributions, particularly for higher earners. Starting in 2025, employees will be able to defer up to $23,500 into their 401(k) accounts. Additionally, those who are 50 years old and above can contribute an extra $7,500, commonly referred to as “catch-up contributions.” However, for workers aged 60 to 63, this catch-up limit will increase to $11,250.
Upcoming 401(k) Changes and Their Impact on Catch-Up Contributions
The Secure 2.0 Act of 2022 introduces a notable change that will affect how higher earners make catch-up contributions. Starting in 2026, individuals earning more than $145,000 from their employer in the previous year will be required to use after-tax Roth contributions for their catch-up contributions, eliminating the option for pretax contributions.
Current Options for Catch-Up Contributions
Before 2026, older workers still have the flexibility to choose between traditional pretax or after-tax Roth contributions if their plans allow for both types. Traditional contributions provide a tax break at the time of contribution but are taxed upon withdrawal. In contrast, Roth contributions do not offer an upfront tax benefit but grow tax-free, making them advantageous in many situations.
Considerations for Retirement Planning
Financial experts advise working closely with advisors or tax preparers to evaluate multi-year tax projections. This assessment helps determine whether to prioritize pretax catch-up contributions before the new regulations take effect or transition to Roth contributions sooner. Key factors include current and anticipated future tax brackets and overall retirement goals.
Statistics on 401(k) Catch-Up Contributions
| Year | Maximum Contribution Limit | Catch-Up Limit (50+ years) | Catch-Up Limit (60-63 years) |
|---|---|---|---|
| 2025 | $23,500 | $7,500 | $11,250 |
Recent statistics reveal that in 2024, almost all retirement plans offered catch-up contributions. However, only 16% of eligible workers utilized this option, according to a 2025 Vanguard report that analyzed over 1,400 plans and nearly 5 million participants. Many participants who did take advantage of catch-up contributions had earned $150,000 or more annually.
The decision to choose between Roth and traditional pretax contributions can greatly influence retirement planning. It’s crucial for investors not to overlook these upcoming changes and to stay informed as new rules emerge.
