Higher Catch-Up Contribution Limit Coming in 2025

Section 109 of SECURE 2.0 provided for a higher catch-up contribution limit beginning in 2025 for participants in a 401(k) or 403(b) plan for a specific population of employees.  The current catch-up contribution limit is $7,500.  The higher catch-up contribution will be the greater of $10,000 or 150% of the regular catch-up limit in 2024; $11,250 for 2025.  This higher catch-up limit will be indexed annually for inflation beginning in 2026.

Who does this impact?

Participants who are age 60 – 63 are eligible for the higher catch-up contribution.  The age of the participant is determined at the end of the tax year.  Therefore, anyone age 60 – 63 on December 31, 2025 is eligible for the higher catch-up limit.  There is no income limitation to be able to take advantage of the higher contribution limit.

Plan Sponsor considerations

Plan sponsors are not required to permit catch-up contributions.  Furthermore, it is still unclear how document providers will provide for this change.  It is possible the document providers will incorporate an “other” line which could exclude the use of the increased limit if the plan currently allows catch-up contributions.  With this provision most likely being applicable to such a small segment of the plan’s participants, given the opportunity, the plan sponsor should consider if those affected are even taking advantage of the current catch-up limit when having to make an election of whether to offer the higher limit or not.   Also to consider is how will the new limits be communicated to those impacted?  Mass notifications or directed communication?

Is your payroll system ready?

Payroll systems are going to have to be programmed to support the higher limitations.  Some payroll providers have more sophisticated systems in place and capture key demographic information, such as date of birth.  This would allow implementation of the new limit to be more streamlined.  However, other systems are not as sophisticated and there lies the potential for errors when implementing the new limits.

Is your recordkeeping system ready?

Recordkeeping platforms are currently re-programming their systems to support the increased catch-up limit.  Implementation of the new limit will most likely not require any plan sponsor action with your recordkeeper.