It can be hard to save for retirement these days because the market is always changing. Most budgets are tight, and any extra money is generally put toward more important things, even though there are many ways to do this.

Most people do this because they know that their employer will take care of their retirement savings. These days, most people are required by their employer to have a 401(k) plan, and some lucky employees even get a workplace contribution match!

Many workers don’t have their plans set up correctly so that their contributions don’t match their salary or the amount of money they hope to have in retirement. When Congress passed the Secure Act 2.0 in 2022, it made a lot of changes to the retirement system.

One of the biggest changes was raising the limits on how much you can put into a 401(k) plan. This new rule is meant to help older workers save more for retirement as they get close to the end of their jobs.

A CNBC poll of about 6,700 people in early August found that about 4 in 10 workers are behind on saving and planning for retirement. This is not a good number, especially when you think about how the Social Security Trusts might not have enough money, but the Secure Act 2.0 might help fix some of these problems.

Workers who are at least 50 years old can make extra contributions to their 401(k) plans, which lets them save more than the standard limit. Starting in 2025, workers aged 60 to 63 can increase their annual 401(k) catch-up contributions to $10,000 or 150% of the catch-up limit, whichever is higher, to help them save even more.

What higher 401(k) catch-up contributions mean for workers

Jamie Bosse, a certified financial planner and senior assistant at CGN Advisors in Manhattan, Kansas, said he liked the new plan. “This is a great way for people to save more for retirement.”

As well, the boost can be pretty big based on what you do. Employees can now put up to $23,000 into their 401(k) plans for 2024. For workers aged 50 and up, they can add an extra $7,500, which will give them an even bigger boost.

It’s too bad that not all workers who are qualified are using these catch-up contributions; in fact, very few are. Vanguard’s 2024 How America Saves study says that only about 15% of eligible workers made catch-up contributions in 2023. Those who did make contributions were already high earners.

Although some people make a lot of money, even those could still have trouble in retirement if they haven’t saved enough. These extra gifts help them plan how to spend the money instead of sitting on it. The Vanguard report actually says that “More than half of 401(k) participants with income above $150,000 and nearly 40% with an account balance of more than $250,000 made catch-up contributions in 2023.”

No one has said what the catch-up contribution cap will be for 2025 yet, but it makes sense that it will go up so that people can save more.

Roth catch-up contributions

Another change made by Secure Act 2.0 is that these extra payments are taxed in a different way. At the moment, workers who make catch-up payments can put their money into either pre-tax or after-tax (Roth) accounts. But that will change in 2026. As of last year, people who made more than $145,000 from a single job had to put money into after-tax (Roth) accounts, 401(k), 403(b), or 457(b) plans.

This means that workers still have one more year to make their catch-up pre-tax payments and save as much as possible before the new rule takes effect.

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