The 401(k) super catch-up provision, introduced under the SECURE 2.0 Act, allows individuals aged 60 to 63 to make enhanced catch-up contributions to their retirement plans starting in 2025. While this initiative aims to bolster retirement savings, there are compelling reasons to reconsider utilizing this option:
- Limited Accessibility: Employers are not mandated to offer the super catch-up feature. Consequently, employees eager to maximize their contributions may find that their workplace plans do not support this provision, limiting their ability to take advantage of the increased contribution limits.
- Financial Feasibility: The enhanced contribution limits are substantial, with eligible individuals allowed to contribute up to $34,750 annually. However, for many, allocating such a significant portion of their income to retirement savings is not practical, especially when balancing other financial responsibilities. Data indicates that only a small percentage of workers currently maximize their 401(k) contributions, suggesting that the super catch-up may not be a viable option for the majority.
- Tax Implications: Starting in 2026, high earners making catch-up contributions will be required to do so on a Roth basis, meaning contributions are made with after-tax dollars. This change could result in a higher immediate tax liability, which may deter some from utilizing the super catch-up provision.
Given these considerations, it’s essential to evaluate whether the 401(k) super catch-up aligns with your financial situation and retirement goals. Exploring alternative savings strategies, such as IRAs or taxable investment accounts, may offer more flexibility and tax advantages tailored to your needs.
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