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LEARNING CENTER

Enhance Your Retirement: Tactical Catch-Up Contributions for the 50+ Crowd

As retirement looms, it's essential for older Americans to employ strategies that bolster their savings, ensuring a stable financial future. An often underutilized tool is the "catch-up" contribution feature available in many retirement plans, which can significantly amplify retirement funds. This article delves into different retirement plans and their catch-up benefits, spotlighting key opportunities for older taxpayers approaching retirement.

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Simplified Employee Pension Plans (SEP IRAs)

SEP IRAs offer a straightforward, tax-efficient route for self-employed individuals and small business owners to prepare for retirement. Contributions can be tax-deductible, and investment growth is tax-deferred, making SEP IRAs a powerful vehicle for long-term savings.

While SEP IRAs lack specific catch-up provisions typical of other plans like 401(k)s, their generous contribution limits make them attractive. By 2025, participants can contribute up to 25% of their compensation or $70,000, whichever is lesser. This high ceiling allows older savers to aggressively build their retirement nest egg despite the absence of formal catch-up contributions.

Simple IRA and 401(k) Plans

For 2025, the standard employee contribution cap for SIMPLE IRAs and SIMPLE 401(k)s is set at $16,500. Participants aged 50 and older are allowed an additional $3,500 catch-up, totaling $19,000. This age-specific provision incentivizes those nearing retirement to significantly increase their savings.

Notably, the Secure 2.0 Act introduces enhanced catch-up options for individuals aged 60 to 63, beginning in 2025. Older savers can now contribute the greater of $5,000 or 50% more than the standard catch-up, pushing the limit to $5,250, with adjustments for inflation in subsequent years. Eligibility is based on age as of December 31 of the year, offering strategic timing for maximizing contributions.

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401(k) Plans and Special Provisions

Known widely as “401(k)” plans, Cash or Deferred Arrangements allow eligible employees to allocate part of their salary into retirement accounts. In 2025, the inflation-adjusted contribution cap stands at $23,500, with those aged 50 and above eligible for an additional $7,500 catch-up, reaching a maximum of $31,000.

Under the Secure 2.0 Act, contributors aged 60 to 63 can enjoy elevated catch-up limits of $11,250, boosting the overall cap to $34,750. These expanded limits are designed to assist those nearing retirement by enabling them to enhance their savings significantly.

Tax Sheltered Annuity Accounts (TSAs)

403(b) TSAs provide a solid foundation for employees in public schools and select nonprofits, allowing tax-deferred growth up to $23,500 by 2025. Those aged 50 and older can add an extra $7,500 annually, significantly enhancing their retirement savings.

Additionally, the “15-Year Rule” benefits long-term employees by permitting an added $3,000 annual contribution, subject to lifetime limits. This provision rewards career dedication in eligible roles, increasing long-term savings opportunities.

Like 401(k)s, TSAs benefit from Secure 2.0 Act provisions that increase contribution limits for plan participants aged 60 to 63 to $34,750 in 2025.

Additional Strategies for Retirement Enhancement

  • Health Savings Accounts (HSAs) - Though primarily used to offset medical costs, HSAs offer a triple tax advantage—tax-deductible contributions, tax-free growth, and withdrawals for medical expenses—that can be strategically leveraged for retirement.
  • Roth IRA Strategies - Roth IRAs remain popular for older savers because they require no RMDs. Savvy converting strategies during low-income years can optimize tax savings.
  • Post-70½ Contributions - The SECURE Act eliminates age barriers for traditional IRA contributions beyond 70½, facilitating continued savings for retirees with earned income.

Strategic tax planning is key to maximizing retirement contributions. Contact us for personalized guidance to secure your retirement future.

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