Catch-up Contributions: What’s on the horizon for 2025 and 2026

By Kimbarley A. WIlliams, CPA

In 2022, with SECURE ACT 2.0, the federal government gave catch-up retirement contributions a boost, allowing certain earners, still working but close to retirement, to stash away more savings.

On January 10, 2025, the Treasury Department and the IRS issued proposed regulations providing guidance on the 401(k) catch-up contributions updated by SECURE 2.0. Plan administrators must pay attention because they could have the people impacted -- individuals nearing retirement and high earners – on their payrolls. Significant changes include increased catch-up limits for those aged 60 to 63 and mandatory Roth contributions for high earners making more than $145,000.

Playing catch-up

Under the basic rules of the Economic Growth and Tax Relief Reconciliation Act (EGGTRA), plan sponsors may voluntarily amend their retirement plans to allow participants over 50 years of age to save more for retirement by making catch-up contributions to their 401(k), 403(b), and 457(b) plans.

Now, for years beginning after December 31, 2024, eligible participants who reach ages 60 through 63 during the year can stash away even more.

Here’s how it works:

• Participants aged 60 to 63 may make additional contributions of either $11,250 or 150 percent of their 2024 contribution limit, as indexed for inflation after 2025.
• For all other employees, the catch-up limit will be $7,500.
• Participants in SIMPLE IRA plans before December 31, 2024, that allow catch-ups may contribute up to $3,500, as indexed. In 2025, such contributions rely on the participant’s age (50 to 59, or 64 or older on December 31, 2025) and the company’s number of employees. Depending on these factors, a participant’s contributions above regular deferrals can total between $3,850 and $5,250.

High earners with wages over $145,000, beginning after December 31, 2025, will need to make catch-up contributions to designated Roth accounts with no tax deduction. The January 10, 2025, proposed regulations made these clarifications:

• The Roth mandate applies to 401(k), 403(b) and governmental 457(b) plans – but not to SIMPLE IRA plans.
• Under proposed Treasury Regulation Section 1.414(v)-2(a), if any catch-up eligible participant who is subject to the mandatory Roth catch-up contribution provision is allowed to make Roth catch-up contributions for a plan year, then all catch-up eligible participants in that plan must also be permitted to do the same in that plan year.
• The requirement only applies to employees with “wages” from the employer in the preceding year that exceed a dollar threshold. “Wages” means wages subject to FICA, which are the amounts reported on Box 3 (not Box 1) of the employees’ W-2s. The dollar threshold was $145,000 in 2023 but will rise in future years based on inflation.
• Anyone with no FICA wages from the sponsoring employer for the preceding calendar year would not be subject to the mandatory Roth catch-up requirement under the plan in the current year.
• The FICA wage threshold would not be prorated for an individual’s year of hire.
• The look-back wage rule means that new employees, regardless of salary, will get a free pass in their first year of employment. That’s because they had no wages from the previous year from the new company. Because the IRS says the dollar threshold is not prorated for the first year of employment, some highly-paid employees will also not be affected in their second year of employment.
• The proposed regulations would not require a plan to include a qualified Roth contribution program. However, if a plan doesn’t include a qualified Roth contribution program, then the new proposed Treasury Regulation Section 1.414(v)-2(b) would provide that a participant who is subject to the mandatory Roth catch-up provision cannot make any catch-up contributions under the plan.

Moving forward

Regardless of whether a plan offers a qualified Roth contribution program, implementing the mandatory Roth catch-up provision adds administrative complexity to the work of employers and plan administrators. Employers must coordinate with payroll providers, third-party administrators, and other plan stakeholders to safely ensure compliance with all legal provisions.

For the peace of mind that comes with knowing you’re in compliance, talk to the experts at Boyer & Ritter. The Employee Benefit Plan Services Group has the experience and knowledge to provide clear, actionable guidance that keeps plans on track.

About the Author

Kimbarley A. Williams, CPA, is a principal at Boyer & Ritter LLC and is chair of the firm’s Employee Benefit Plan Services Group. Kim has over 20 years of experience providing audit, accounting and tax services to employee benefit plans, business trade associations, charitable organizations, community foundations, and closely held businesses. Contact Kimbarley at 717-761-7210 or kwilliams@cpabr.com.