Catch-Up Contributions and SECURE 2.0: What to Know and Next Steps

Author: Connie Lee / 23 Feb 2024 / Retirement Trends & News, Small Business 401k, State Mandated Retirement Plans

In its simplest form, catch-up contributions are exactly what it sounds like: An opportunity for people 50 and older to “catch up” and save more money in their retirement accounts than what the usual annual contribution limits from the IRS allow. This is perfect for those that got a late start with their retirement savings or had to delay saving entirely because life happens.

But when examined more closely, catch-up contributions are crucial to help improve the overall state of retirement in the U.S. According to the U.S. Census Bureau, about 47% of men and 50% of women ages 55 to 66 have no personal retirement savings. Because of this, they’re generally more stressed and worried, have lower financial wellbeing, and just don’t have the room to enjoy their retirement years like they would want to – and this may apply to several of your employees! Catch-up contributions pick up the slack, making saving for retirement possible for all through flexibility and more tax-saving opportunities. It makes gaining brighter financial futures possible.

In this article, we’ll discuss key facts to keep in mind about catch-up contributions ahead of SECURE 2.0 requirements that are coming in 2025, amounts and limits to know for you and your workforce, and how you can raise awareness around the changing landscape by informing and educating your workforce.

What the Facts Are

• Almost all employers offer catch-up contributions in their retirement plans. A study from Vanguard showed that this specifically is 98% of employers.
• Additionally, Vanguard found that only 16% of people take advantage of catch-up contributions when they’re offered. They’ve been missing out on huge opportunities to build and save!
• The key to catch-up contributions is compound interest. All the money that is contributed to retirement plans grows with time, making it easier to increase savings and even surpass financial goals.
• SECURE 2.0 will change the retirement landscape by requiring most companies to enroll eligible employees into their designated retirement plan automatically. It also will allow for higher catch-up contribution limits, which will help transform retirement for all.

Catch-Up Contribution Amounts and Limits

• For 2024, the catch-up contribution is an extra $7,500, along with the $23,000 limit, totaling $30,500.
• Starting in 2025, catch-up contribution limits for workplace plans will increase from $7,500 per year to $10,000. This will be indexed as inflation.
• Beginning in 2026, employees that have an income of more than $145,000 per year will require catch-up contributions to be done after taxes to a designated Roth account. While this means less tax savings, these individuals will have tax-free withdrawals in retirement.
• A full breakdown of what’s going on in 2024 can be found on the IRS’ website.

Raise Awareness About What’s Coming Up Next with Catch-Up Contributions

From now until SECURE 2.0 is put into action, things may be a little hectic in your workplace. Employees may be confused and have questions, and you’re probably wondering how to best navigate changes, reinvigorate your offerings, and talk to your workforce.

The best thing you can do during this time is raise awareness and let your employees know how SECURE 2.0 and any changes you make with your company’s retirement benefits is going to improve their catch-up contributions in the long term. A few things to consider bringing up include:

• The expansion of catch-up contribution amounts, which will allow them to save more and actually meet their retirement goals – instead of feeling like they’ll always be steps behind. They’ll be better set up for success.
• The overall impact of this on their financial and overall wellbeing as they get older. By contributing more and becoming financially secure, they’ll be happier, mentally and physically healthier, and will feel confident enough to navigate any money issues that may pop up.

The Bottom Line

Ideally, people should start saving for retirement as soon as possible (which is a whole other conversation to have with your employees). But, because life happens, people – especially your employees – need to understand things such as catch-up contributions can give them the boost to build the nest egg they want. Whether several of your employees are already 50 or older, or won’t be for a while, it’s important to start having discussions now so they understand how beneficial catch-up contributions are for their futures, and that your company is dedicated to supporting them.

And as you plan for conversations around catch-up contributions, it’s also time to think about your retirement offerings ahead of SECURE 2.0. Whether you’re starting from scratch or are looking to take your company’s benefits to the next level, it’s important to ensure now that your offerings best meet the needs of your company and workforce, which means including catch-up contributions as part of those perks. Ubiquity is here to help guide you to the right retirement choice for your business. We offer customized, flat-fee, full-service solutions that ensure success for your company. Contact us today to start tailoring a plan that meets your needs!