Catch-up contributions are made by people aged 50 and above to their 401(k) and individual retirement accounts (IRAs) over the permissible contribution limit. This allows older people to put more of their earnings toward retirement.
The latest update is part of the agencies’ final regulations addressing SECURE 2.0 Act provisions.
While pre-tax traditional contributions are deducted from paychecks before accounting for taxes, Roth contributions are made after taxes have been deducted.
Roth withdrawals from mature accounts—when the individual reaches 59.5 years of age, or from qualified distributions—are tax-exempt, whereas withdrawals from traditional contributions are taxable.
While the catch-up contribution rule generally comes into effect in 2027, the final rule allows retirement plans to implement the Roth catch-up requirement “for taxable years beginning before 2027,” provided there is a “reasonable, good faith interpretation of statutory provisions,” the IRS clarified.
The regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans, according to the Federal Register.
The catch-up contribution limit that generally applies to workers aged 50 and above who participate in these plans is $7,500. However, for employees aged 60–63, the catch-up contribution limit is higher, at $11,250.
The final regulations also provide guidance relating to increased catch-up contribution limits under the SECURE 2.0 Act for employees between the ages of 60–63 and employees in newly established SIMPLE plans, the Sept. 16 IRS statement said.
SIMPLE plans are designed for employers with fewer than 100 workers.
The final regulations highlighted that the social security wage base limit last year was $168,600, “significantly higher” than the $145,000 wage limit for 2024 on which the Roth catch-up requirement for this year was based.
“As both dollar amounts are adjusted annually for cost-of-living increases under current law, the Treasury Department and the IRS do not expect that applying the Social Security wage base limit will ever affect the determination of whether a participant is subject to the Roth catch-up wage threshold,” the regulations state.
While 64 percent of employees in BlackRock’s survey said they felt they were on track with their retirement savings, only 38 percent of employers held such an opinion about their employees.
The savings rate has dropped to a median of 10 percent this year from 12 percent in 2022, which the investment company attributed to economic uncertainty.
“A decade of insights on retirement readiness data reveal a striking paradox: while saver optimism about retirement is rising, employer confidence and actual savings contributions are falling—highlighting a disconnect between how prepared people feel and how prepared they likely are,” said Jaime Magyera, head of BlackRock’s Retirement business.
“This gap is a call to action. While much progress has been made to help educate and simplify saving for retirement, savers and employers alike are seeking more solutions—like professional guidance and access to lifetime income and private markets—to help people build confidence and afford longer retirements.”
Meanwhile, only 27 percent of retirees in the survey felt they were financially prepared for the rest of their retirement, a decline from 43 percent in 2020, and an “all-time low,” according to the survey.
