Since 2002, employers have been able to make catch-up salary deferrals to their employees in their 401(k), 403(b), and governmental 457(b) plans beginning in the calendar year in which they turn 50 (the “Age 50 Catch-up”). Catch-up salary deferrals are deferrals that exceed the limit imposed by the plan or statute. The regular salary deferral limit for 2025 is $23,500 and the Age 50 Catch-up limit is $7,500. The SECURE 2.0 Act of 2022, however, increased the catch-up contribution limit for participants aged 60 to 63 to encourage additional retirement savings (the “Enhanced Catch-up”). For 2025, the Enhanced Catch-up limit is $11,250 (an additional $3,750).
Must the Enhanced Catch-up be Added if the Plan Permits the Age 50 Catch-up?
As of now, the IRS has not issued guidance on whether a plan that allows the Age 50 Catch-up must also offer the Enhanced Catch-up. Some experts argue that if a plan permits the Age 50 Catch-up, it must also offer the Enhanced Catch-up. Others contend that since the Age 50 Catch-up is optional, offering the Enhanced Catch-up should likewise be optional. In the absence of formal guidance, many recordkeepers are allowing plan sponsors to decide whether to implement the Enhanced Catch-up in 2025, rather than requiring it for all plans that currently offer the Age 50 Catch-up. We recommend that if a plan offers the Age 50 Catch-up, the Enhanced Catch-up should also be offered, provided the plan’s recordkeeper and the plan sponsor’s payroll provider can support it. There is little downside to adding this option to a 401(k), 403(b), or governmental 457(b) plan.
Which Participants are Eligible for the Enhanced Catch-up?
Participants are eligible to make Enhanced Catch-up salary deferrals if they turn 60, 61, 62, or 63 by the end of the calendar year. A participant who turns 64 during the calendar year in which the plan year ends is not eligible to make Enhanced Catch-up contributions for that year.
For example, John and Joe’s employer is adding Enhanced Catch-ups to its 401(k) Plan effective January 1, 2025. John’s 60th birthday is December 16, 2025. For the 2025 plan year, John can make Enhanced Catch-up salary deferrals based on his compensation from January 1, 2025, through the end of the plan year. Joe’s 64th birthday is on March 15, 2025. Joe is not eligible to make Enhanced Catch-up salary deferrals in calendar year 2025 but may make the Age 50 Catch-up salary deferrals.
Mandatory Roth Treatment
In 2025, both Age 50 Catch-ups and Enhanced Catch-ups can be made on a pre-tax basis, Roth (after-tax) basis, or a combination of the two. However, starting in 2026, all Age 50 and Enhanced Catch-up contributions must be made as Roth salary deferrals by certain high earning participants (i.e., for 2026, those participants whose W-2 wages in 2025 exceed $145,000). Please note that the mandatory Roth contribution requirement does not apply to anyone who does not receive W-2 wages (e.g., sole proprietors and partners).
If you are considering offering the Enhanced Catch-up salary deferrals to your employees, check with your payroll provider and recordkeeper to ensure their systems are set up to handle the Enhanced Catch-up. Then, coordinate with your document provider and recordkeeper to make the necessary updates and amend your 401(k), 403(b) or governmental 457(b) Plan to add Enhanced Catch-ups.
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