Working At 60? Don’t Assume Your 401(k) Is Maxed Out

There have been numerous changes to the tax rules surrounding retirement plans in the last few years. One in particular, which is effective in 2025, has flown under the radar. It is sometimes called the “super” catch-up contribution, and it’s only available to workers age 60 to 63.

New 401(k) Catch-Up Limit For Workers Age 60 To 63

Starting in 2025, individuals ages 60 to 63 (by December 31) can make even higher catch-up contributions to their 401(k), 403(b), or governmental 457(b) retirement plan. The new rule allows these workers to contribute up to 150% of the inflation-adjusted catch-up limits for individuals over age 50. In 2025, the regular catch-up contribution limit for these plans is $7,500, so the “super” catch-up contribution is $11,250 (150% x $7,500).

So in 2025, the total contribution a worker age 60 to 63 could make is $34,750. Just like the existing rules, the new catch-up contribution will not count toward the overall employer and employee funding limits.

Some Catch-Up Contributions Move To Roth In 2026

As part of the Secure Act 2.0 legislation that created these changes, the bill also included new rules for more highly compensated workers. Starting in 2026, individuals earning FICA wages above $145,000 (indexed for 2024) in the prior year can no longer make pre-tax catch-up contributions.

Instead, age-based contributions will be included in taxable income and go to a designated Roth account within the retirement plan. Next year this change will apply to both age 50-plus and age 64-plus catch-up contributions as well as ages 60 to 63.

The income test is on an employer-by-employer basis. Prior year income is not annualized, so mid-year job changers might be able to extend pre-tax treatment.

Should You Make A Catch-Up Contribution?

In general, most workers benefit from the dual benefit of a tax deferral and additional retirement savings. Obviously, workers should consider their cash flows, savings goals, and overall financial situation before making a change. But for folks making the old catch-up contribution, saving an extra $3,750/year might not be a stretch. Keep in mind, pre-tax contributions reduce your taxable income, so the net reduction in pay isn’t dollar-for-dollar.

For workers who will be subject to the income limits in 2026, the math changes a bit, as the immediate tax benefit goes away. Using the 2025 catch-up limits and assuming an average combined tax rate of 25%, losing the regular catch-up could increase tax by almost $1,900. This grows to over $2,800 if considering the special catch-up. And that assumes only one spouse is contributing.

Although the tax deferral loss is unfortunate, making catch-up contributions in 2026 will still make sense for some workers.

While deciding which approach is right for you, consider factors such as:

• Employer matching: rules and limits, including vesting rules if you don’t plan to work much longer
• Roth account rules: for distributions from a Roth 401(k) to be tax-free on earnings and penalty-free, the taxpayer must be over age 59 1/2 and five tax years must have passed since the first contribution was made to the Roth 401(k) for that employer. There are different rules if the Roth 401(k) is rolled over to a Roth IRA, so consult your tax advisor.
• Save in a brokerage account: the most flexible type of investment account is a brokerage account. A brokerage account has no contribution limits or withdrawal rules. Brokerage accounts can also provide flexibility to reduce taxable income with tax-loss harvesting, maximizing the tax benefits of charitable giving by donating appreciated stock to charity, and even more favorable tax treatment on inherited assets thanks to the step-up in basis.

Importance Of Planning When Retirement Nears

As you near retirement, it is more important than ever to focus on planning, asset allocation, income needs, and objectives. For workers eligible for a catch-up contribution, it can be a great way to boost retirement balances. As a first step, consider discussing the rules and options with your employer, as some may have plan-specific requirements.

Disclosures

Kristin McKenna is a Forbes contributor. Examples in her articles are generic, hypothetical and for illustration purposes only and should not be misinterpreted as personalized advice of any kind or a recommendation for any specific investment product, financial or tax strategy. This general communication should not be used as the basis for making any type of tax, financial, legal, or investment decision. If you have questions about your personal financial situation, consider speaking with a financial advisor.