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Writer's pictureJeff J. Kim

What Plan Sponsors Need to Know - New 401(k) Catch-Up Provisions (Part 1)| Jeff J. Kim


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What Plan Sponsors Need to Know - New 401(k) Catch-Up Provisions (Part 1)

Alright, let’s talk about the latest shake-up in the retirement savings game. The SECURE 2.0 Act dropped some major updates to the way 401(k) catch-up contributions work, and if you’re a plan sponsor, you’ve got some serious adjustments to make. But the good news is with a little planning and the right strategy, this could actually be a win-win for you and your employees. Here’s a breakdown of what’s changing and what it means for you, as the fiduciary managing these plans.


The Big Changes in Catch-Up Contributions

Catch-up contributions have always been a great way for older employees to turbocharge their retirement savings. In 2024, the standard contribution limit is $23,000, and employees aged 50 and up can toss in an extra $7,500 on top of that. But with SECURE 2.0, the government’s making some key tweaks:


  • Super-Charged Catch-Up for Ages 60-63: Starting in 2025, employees aged 60 to 63 can contribute even more. The catch-up limit for this group will jump to $10,000 or 150% of the standard catch-up limit, whichever is higher. It’s a big boost for late-career savers.

  • High Earners Must Use Roth for Catch-Up Contributions: Starting in 2026, if your employees make more than $145,000 in the prior year (adjusted for inflation), their catch-up contributions have to be Roth (after-tax). No more pre-tax options for these folks.



What This Means for Plan Sponsors

This is where you, as a plan sponsor, need to sit up and pay attention. The changes sound straightforward, but they’ll bring some complexities to how you manage your 401(k) plans.


  • Adjusting Your Systems: Let’s be honest — anytime you have to mess with payroll and admin systems, it’s a headache. But with these new rules, you’ll need to update your systems to recognize employees who make over $145,000 and automatically route their catch-up contributions into Roth accounts. If your plan doesn’t have a Roth option yet, it’s time to get one set up. And that bigger catch-up contribution for those between 60 and 63? Your systems need to be ready for it by 2025, so now’s the time to start prepping.

  • Communication is Key: Your employees need to know about these changes — and they need to know now. If they’re high earners, they’ll need to understand why their catch-up contributions are suddenly Roth-only. You’ve got to be crystal clear about the tax implications too, because this could impact their financial planning.


 

For those in the 60-63 age bracket, you’ll want to highlight the new, higher limits coming in 2025. This is a golden opportunity for them to supercharge their savings right before retirement. Let them know why it’s worth maxing out.


  • Staying Compliant: Plan sponsors have a fiduciary duty to keep everything above board and in line with the law. That means making sure your plan documents and systems are updated for these new rules. You don’t want to be caught out of compliance here, because the penalties can be steep. Make sure your employee notices and summary plan descriptions (SPDs) are updated too. And now’s a good time for a plan audit to make sure everything’s running smoothly.

  • Adding a Roth Option: Here’s the thing — if your 401(k) plan doesn’t currently have a Roth option, you’re going to need one. The SECURE 2.0 rules mandate that high earners only use Roth for their catch-up contributions, so if you don’t offer it, you’re out of compliance. Yes, there’s some upfront cost and complexity here, but it’s non-negotiable.



Turning Challenges into Opportunities

The changes are mandatory, sure, but they’re also a chance for you to beef up your 401(k) offering. By highlighting these new rules, you can help employees understand the benefits of Roth accounts — like tax-free withdrawals in retirement — and encourage them to take full advantage of higher contribution limits.

Especially for those in the 60-63 age group, the increased catch-up contribution is a big deal. It’s a great way to build more wealth heading into retirement, and you should be promoting that.

More broadly, this is an opportunity for plan sponsors to demonstrate that you’re on top of your game and are committed to helping employees reach their retirement goals. That goes a long way in building employee loyalty and engagement.


What You Need to Do Next

Here’s your action plan to stay ahead of these changes:


  • Review and update your plan documents to reflect the new catch-up contribution rules, especially the Roth requirement for high earners.

  • Work with your payroll and record-keeping systems to ensure you’re ready for the new rules, including identifying who’s subject to Roth catch-ups and handling the increased limits for the 60-63 group.

  • Communicate with your employees — don’t wait until the last minute. Let them know what’s changing, how it affects them, and why they should take advantage of these new rules.

  • Consider offering education sessions or one-on-ones with a financial advisor to help employees make smart decisions.


No one loves change, especially when it comes with extra admin work. But these new catch-up contribution rules from SECURE 2.0 are an opportunity for you to enhance your 401(k) plan and boost retirement readiness for your employees. Stay compliant, communicate well, and this could be a big win for both you and your team.

If you handle this right, you’re not just ticking the compliance box — you’re positioning your company as one that’s really invested in its employees' financial futures. That’s something people remember.

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