401(k) Catch-Up Changes for 2025

The 401(k) is getting a boost in 2025, and it is not just limited to higher standard contribution limits. The Internal Revenue Service (IRS) has also rolled out new catch-up contributions, giving older investors a chance to put more money toward retirement and make up for lost time. These 401k catch-up changes could help you build a stronger nest egg, but understanding how they affect you is essential.

A financial advisor can walk you through the details and ensure you make the most of these updates. This article will also break down everything you need to know about the latest 401(k) catch-up changes so you can use the provision effectively.

What are the new contributions changes for 401k in 2025?

The 401(k) helps you build your retirement savings through two types of contributions – standard contributions and catch-up contributions. If you are under 50 and have access to an employer-sponsored 401(k), you can contribute up to the standard annual limit set by the IRS. Many employers also offer matching contributions, which can further boost your savings. Once you turn 50, the IRS allows you to contribute beyond the standard limit through catch-up contributions. This option is especially useful if you started saving late or want to accelerate your retirement savings before you leave the workforce. Until now, there has been a single catch-up limit. The 401k catch-up age was at 50, allowing people over 50 to contribute more than those under 50. Starting in 2025, the SECURE 2.0 Act has introduced an additional catch-up category, creating two separate limits based on age. If you fall between the ages of 50 and 59, you can continue making catch-up contributions at the current limit. However, if you are between the ages of 60 and 63, you will be allowed to contribute even more, thanks to an enhanced catch-up provision.

There are three major changes for 401ks for each age group in 2025:

Standard contribution limit: If you are contributing to a 401(k), you can now set aside up to $23,500 in 2025, up from $23,000 in 2024.
Catch-up contributions for ages 50 and older: Once you turn 50, you can contribute even more. The catch-up contribution limit stays at $7,500, bringing your total possible contribution to $31,000 in 2025.
Catch-up contributions for ages 60 to 63: If you are between 60 and 63, you will get an even bigger boost with the new 401k super catch-up. The SECURE 2.0 Act lets you contribute up to $11,250 in catch-up contributions, significantly more than the standard $7,500. With this increase, your total 401(k) contribution jumps to $34,750 in 2025, which is a 14% increase over last year.

It is important to note that if you have access to multiple 401(k) plans through different employers, you can spread your savings across these plans. However, there is a single contribution limit on the total amount you can contribute as an employee each year, regardless of how many 401(k) plans you may have.

For 2025, the standard contribution limit is $23,500 for all plans. If you are under 50, this is the maximum amount you can contribute across all your 401(k) plans combined. So, if you have two different employer-sponsored 401(k) plans, you can divide your contributions between them, such as $11,750 + $11,750. However, your total contribution cannot exceed $23,500. If you are between 50 and 59, you qualify for catch-up contributions, but the limit still applies. So, you can contribute an additional $7,500 in catch-up contributions, bringing your total 401(k) contribution limit to $31,000 for 2025. If you have multiple 401(k) plans, you can distribute this amount across them as you prefer, but the total still cannot exceed $31,000. For the 60 to 63 age group, you can contribute an extra $11,250 in catch-up contributions. This increases the total contribution limit to $34,750 for 2025. However, just like with standard contributions, this limit applies across all 401(k) plans combined. Even if you have multiple employer-sponsored plans, you cannot exceed the $34,750 cap.

How can you use the new catch-up provision of 401k with your workplace account?

With the introduction of the super-catch-up provision in 2025, you can contribute more to your 401(k) plans if you are aged 60 to 63. However, there is still some debate on whether employers must implement this provision or if they have the flexibility to opt-out. The law under Internal Revenue Code (IRC) Section 414 (v) mentions the guidelines for implementation, but its interpretation is not as straightforward. While the new rule increases the contribution limits, not all employees will automatically gain access to the higher limits. The employer’s decision on whether to implement or opt out of super-catch-up contributions will determine its actual impact on employees.

Some retirement plans may automatically allow super-catch-up contributions if they already reference IRC Section 414 (v) for catch-up provisions. However, depending on how the employer interprets the rule, they may have two options – automatic implementation or optional implementation with flexibility. Let’s break down both scenarios.

Scenario 1: Automatic implementation where the super-catch-up applies unless employers opt-out

Under this approach, 401k super catch-up contributions will apply by default in 2025 for plans that already allow catch-up contributions under IRC Section 414 (v) because the new law expands the catch-up limits rather than creating a separate category. So, if an employer’s 401(k) plan document references Section 414 (v) without specifying a limit, the new higher limits for workers aged 60 to 63 may automatically go into effect starting January 1, 2025. As a result, all eligible employees will be able to contribute the higher $11,250 catch-up amount instead of the standard $7,500 for those over 50. Additionally, employers would not need to make any immediate changes to their plans if they want to allow these higher contributions.

Plans that follow standard IRS catch-up contribution rules will have to accept the super-catch-up contributions unless they take action to opt out before the end of 2024. Employers that do not want to offer this increased contribution must formally amend their plan documents before December 31, 2024, to prevent the changes from taking effect automatically.

Scenario 2: Optional implementation where employers can decide to allow or reject super-catch-up

Another way to interpret the law is that super-catch-up contributions are not mandatory, and employers have the discretion to implement, modify, or reject them based on their plan’s needs. IRC Section 414 (v) sets an upper limit for catch-up contributions but does not explicitly require employers to adopt the maximum allowable amount. Under this interpretation, an employer must take deliberate action to include the higher super-catch-up limits. If an employer does nothing, they may be able to continue allowing only the standard catch-up contribution of $7,500 rather than increasing it to $11,250 for ages 60 to 63.

Employers may choose to delay their decision and formally amend their plan by the SECURE 2.0 deadline, which is currently December 31, 2026, instead of making changes before 2025. If an employer wants to prevent super-catch-up contributions from taking effect, they must clarify their plan terms and possibly take action before the end of 2024.

How do the two interpretations impact employees?

The new super-catch-up contribution rule for 401(k) plans presents both opportunities and potential challenges for employees aged 60-63. If an employer automatically adopts the new rules, employees aged 60 to 63 can start making higher contributions in 2025 without any additional restrictions. Maximizing your contributions can not only help you build a bigger retirement corpus but also lower your tax liability. 401(k) plans grow tax-deferred, allowing you to grow wealth without incurring taxes. If you plan to retire early, these additional savings can help you reach your goals sooner. Additionally, some employers may match your 401(k) contributions up to a certain percentage. Higher contributions through the super catch-up limit could result in higher employer matches, further enhancing your retirement savings.

However, if an employer chooses not to allow super-catch-up contributions, employees in the 60 to 63 age group will remain limited to the standard $7,500 catch-up amount. This can limit your capacity to save more. Without the enhanced catch-up, employees in this age group may find it harder to boost their retirement savings in their final working years. If you are retiring soon and hope to take advantage of the new limits, you may have to consider postponing retirement or exploring alternative investment options like the Individual Retirement Account (IRA) to compensate for the lost contribution opportunity.

Regardless of whether your employer adopts the new rule, you can take proactive steps to ensure you are maximizing your retirement savings. Here are some things you can do:

1. Increase your 401k contributions

Employees should aim to contribute as much as possible within the new $23,500 standard limit. If you are 50 or older, you can also take advantage of the $7,500 catch-up contribution, which brings your total contribution to $31,000. For those between 60 and 63, the new $11,250 enhanced catch-up limit allows a total contribution of $34,750. Even if you cannot contribute the full $34,750, try to contribute at least $31,000 to maximize your retirement savings potential. Every additional dollar you contribute can help you save for your retirement years. Moreover, the more you contribute, the higher the employer match you qualify for, which can boost your savings.

2. Check if your employer is implementing the catch-up limit

It is essential to check whether your employer plans to implement the new super-catch-up contribution limits. Since companies have the flexibility to decide whether they will allow employees to use the enhanced limits, staying informed can help you plan your retirement contributions effectively. If your company decides against allowing the higher catch-up contributions, you might need to explore alternative retirement savings options. This could include contributing more to an IRA or other tax-advantaged accounts. Additionally, if maximizing your 401(k) contributions is a priority for you and your present employer does not offer provision, you could consider switching to an employer that allows the enhanced limits. While changing jobs solely for this reason may not be practical for everyone, it could be a factor to weigh if you are already considering a career move.

3. Discuss with a financial advisor

If you are unsure about how the new catch-up contribution limits for a 401k apply to your specific situation, consulting a financial advisor can be helpful. A professional advisor can help you make use of the enhanced limits based on your financial situation, age, income, and other factors. A financial advisor can also assess whether maximizing your 401(k) contributions aligns with your broader investment plan or whether investing in a different option makes more sense. If your employer does not offer the super-catch-up contribution, they can suggest alternative ways to boost your retirement savings, such as IRAs, real estate, or other asset classes.

To conclude

The upcoming 401(k) contribution changes in 2025 can help you boost your retirement savings. However, since employers have control over whether to implement the new super-catch-up provisions, employees must stay informed about their workplace retirement plan policies. If your employer chooses not to adopt the enhanced limits, it may limit your ability to maximize tax-advantaged savings. In such cases, exploring alternative options, such as IRAs or other investment vehicles, can help you bridge the gap. Consulting with a financial advisor can also help ensure you remain on track for a secure retirement and benefit from the available provisions for your age group.

Use the free advisor match tool to get matched with seasoned financial advisors who can help you create a retirement planning strategy suited to your needs. Answer some simple questions about your financial needs and get matched with 2 to 3 advisors who can best fulfill your financial requirements.

For further information on creating a suitable retirement plan for your unique financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been covered in major business publications such as Barron’s, The Wall Street Journal, and The New York Times as a leader in the investment industry with a track record of creating value for his firm’s clients.