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Increased Catch-up Limit for ages 60-63


austin3515

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The increased catch-up limit is the greater of $10,000 or 150% of the regular limit.  The regular limit in 2023 is $7,500 and 150% of even that limit is $11,250.  Yet I cannot find a single article that references this contradiction.  I realize the $10,000 is indexed for inflation but so is the catch-up limit.  The 150% is so far ahead I can't see the $10,000 (even indexed for inflation) will ever be relevant.

The lack of commentary on this is so glaring I am starting to wonder if I'm the one missing something?

Austin Powers, CPA, QPA, ERPA

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I believe it's 15%, not 150%.  Currently, individuals over 50 can make catch-up contributions of up to $7,500 in their 401(k) plans, as well as most 403(b) and 457(b) plans. Under SECURE 2.0, starting in 2025, individuals aged 60 to 63 will be able to make catch-up contributions of $10,000 or 50% more than the regular catch-up amount in 2025 — whichever is greater. The increased amounts will also be indexed for inflation after 2025.

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The percentage is 150%.  The topic was addressed in a presentation at the ASPPA Spring Conference last week.  The question of what is indexed, the $10,000, the regular ($7,500) limit, or both was answered with "Who knows!?" - and we await guidance.

Austin, you are not alone.

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22 hours ago, austin3515 said:

The 150% is so far ahead I can't see the $10,000 (even indexed for inflation) will ever be relevant.

I suspect that this particular provision was written well before the final bill was passed, and before the huge inflation adjustments that took effect for 2023 were known. In hindsight, we can see that the $10,000 limit is not likely to ever apply.

The increased catch-up limit goes into effect for 2025. I suspect the exact dollar amount that applies for 2025 will be revealed in Fall 2024 when the IRS publishes the annual inflation-adjusted limits for 2025.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Although the provision that became included in the Consolidated Appropriations Act was written in December (after the IRS’s October 21 release of inflation adjustments for 2023), it seems likely the text was based, as C.B. Zeller suggests, on other bills in the 117th Congress, perhaps with little editing.

$6,500 [2022] x 150% = $9,750 < $10,000

If a curious person wants to test the idea that the $10,000 expression, even if inflation-adjusted, might never matter, one might read the full work that supports the Joint Committee on Taxation’s Estimated Revenue Effects of H.R. 2617, JCX-21-22 (Dec. 22, 2022). Those work papers might show the JCT’s assumptions about estimated inflation adjustments as they would affect fiscal years 2025 through 2032.

I confess I’m not so curious.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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You're not missing anything Austin3515...

https://buck.com/secure-2-0-significant-changes-for-employer-sponsored-retirement-plans-start-now/

Buck comment. Currently, 150% of the age 50 catch-up limit is greater than $10,000, so the limit at ages 60-63 would already be $11,250 (even before cost-of-living increases are applied). Additionally, the elimination of pre-tax catch-up contributions for high-income earners will also apply to these catch-up contributions.

 

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It's also mentioned in the 2023 version of the ERISA Outline Book.

 

2.f.        Higher catch-up limit for ages 60 - 63. Section 109 of the SECURE 2.0 Act of 2022 increases the catch-up limit for individuals who are age 60, 61, 62, and 63, effective for taxable years beginning after December 31, 2024. The limit is only increased for these specific ages. The increased limit for plans other than SIMPLE IRAs and SIMPLE-401(k) plans is the greater of $10,000 or 150% of the regular 2024 catch-up limit. Because both of these amounts are indexed for COLAs, the $10,000 threshold will not be applicable because the indexing of 150% of the 2024 catch-up limit will always exceed $10,000. 

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