Employees that are age 50 or older are allowed to make an annual salary deferral catch-up contribution into their retirement plan. For 2024 the catch-up contribution amount is $7,500. Beginning in the year 2025, taxpayers who are the age of 60, 61, 62 or 63 will be allowed a catch-up contribution capped at the greater of $10,000 or 150% of the regular catch-up amount. If the 2025 catch-up contribution remains at $7,500, then the max catch-up for this age group under this new rule will be $11,250. And the after-tax cost for a taxpayer funding the incremental amount ($3,750) is quite small. For a taxpayer in the 35% federal tax bracket and a resident of MA (5% tax rate), funding this additional $3,750 into a pre-tax salary deferral retirement plan will only “cost” $2,250 based on after-tax dollars – a 40% discount in current year dollars!
So as you begin updating your 2025 benefits package offered through your employer’s HR sometime later this fall, take note of this new rule if you will be age 60-63 in 2025.