By Jenny Kiffmeyer, J.D – The Retirement Learning Center
“We are aware that, beginning in 2025, participants ages 60-63 can contribute a higher catch-up contribution of $11,250 to deferral-type plans. Is this provision mandatory and, if so, what are its implications?”
Highlights of the discussion
The quick answer is no—plan sponsors do not have to permit catch-up contributions to their plans at all, including these extra “Age 60-63” catch-up contributions. What is unclear at this point is whether the Age 60-63 catch-up provision is a separate feature from or part of the traditional Age 50 catch-up provision. In other words, will this feature be a single option that encompasses the Age 50 catch-up contribution option, or will it be a standalone option apart from the Age 50 option?
The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Pension Protection Act of 2006 created Age 50 catch-up contributions. Beginning for the 2025 plan year, Section 109 of SECURE Act 2.0 increases the catch-up contribution limits for participants ages 60-63. If the plan document permits, eligible participants may take advantage of this increased limit. For example, for nonSIMPLE-type plans [i.e., 401(k), 403(b) and governmental 457(b) plans] the catch-up contribution limit increases to $10,000 or 50 percent more than the regular (i.e., “Age 50”) catch-up limit, whichever is greater (i.e., $11,250 for 2025). Once a participant reaches age 64 in a calendar year, the catch-up limit will revert back to the Age 50 catch-up limit outlined in IRC § 414(v)(2).
Another consideration of the age 60-63 catch-up provision is complexity. Sophisticated deferral and payroll processing functionality is needed to accurately support this provision. Excess deferrals can easily occur without this functionality.
Plan sponsors who decide to permit the age 60-63 catch-up limit should ensure that their payroll and deferral processing can support such provisions, and the plan documents are amended for this provision.
Conclusion
Beginning for the 2025 plan year, Section 109 of SECURE 2.0 increases the catch-up contribution limits for participants ages 60-63. If the plan document permits, eligible participants may take advantage of this increased limit. Plan sponsors who decide to permit the age 60-63 catch-up limit should ensure that their plan providers can support such provisions, and the plan documents are amended for this provision.
