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Forbes
06-05-2025
- Business
- Forbes
Working At 60? Don't Assume Your 401(k) Is Maxed Out
Sometimes called the 'super' catch-up contribution, this new saving option is only available to ... More workers age 60 to 63. getty 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. Starting in 2025, individuals ages 60 to 63 (by Dec. 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 towards the overall employer and employee funding limits. 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+ and 64+ catch-up contributions as well as age 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 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. 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.
Yahoo
01-05-2025
- Business
- Yahoo
ShareBuilder 401k Offers Free 401(k) Setup for Small Businesses through May 23rd
Businesses can provide affordable retirement benefits and lower their personal taxes too SEATTLE, May 01, 2025--(BUSINESS WIRE)--ShareBuilder 401k is waiving setup charges of up to $750 through May 23rd, making it easier for small businesses to provide retirement benefits to their employees while creating a tax benefit. According to a recent ShareBuilder 401k survey, only 24% of small businesses offer retirement plans to their employees, with many unaware they can offer affordable 401(k) benefits or that employer match costs are optional but can be mostly offset with tax credits and tax deductions. "ShareBuilder 401k wants to make it easy and affordable for any size businesses to offer retirement plans to their employees including the self-employed," said Stuart Robertson, President and CEO of ShareBuilder 401k. "With our free setup offer, low-expense solutions, and tax credits from the Secure Act 2.0, small businesses can start a no to low-cost 401(k) and help their employees, and themselves build for a secure retirement while lowering personal taxes, too." Passed in late 2022, Secure Act 2.0 eliminates most cost barriers for small businesses with employees. Businesses with employees who are starting their first 401(k) can qualify for tax credits which can offset ongoing administrative costs and applicable employer matching contributions too. For companies with 1-50 employees, the tax credits for employer admin costs are dollar for dollar up to $5,000 for each of the first three years of starting a 401(k). Most small businesses with employees will spend much less to offer a plan and can expect to spend $1,000 to $2,000 annually. Other tax credits and deductions help cover matching contributions an employer may choose to provide. Note that while the self-employed starting a Solo 401(k) are not eligible for these tax credits, any setup or ongoing support costs are generally tax deductible for their business. Small business owners and employees can also benefit with either pre-tax 401(k) contributions to lower this year's taxes (monies will be taxed upon withdrawal in retirement) and/or using the Roth 401(k) feature to contribute after-tax and benefit from tax-free withdrawals in retirement. Unlike a Roth IRA, there is no income limit to contribute to a Roth 401(k). Small businesses with employees interested in learning more about ShareBuilder 401k's free setup offer can visit About ShareBuilder 401k ShareBuilder 401k is a leading digital 401(k) provider specializing in low-cost, all-ETF retirement products and resources for small- to mid-sized companies, including owner-only businesses. Founded in 2005, and now serving more than 6,500 businesses across the US, ShareBuilder 401k is a pioneer of the index-based 401(k), digital quoting and purchasing of retirement plans, and providing investment management (ERISA 3(38)) services for every client's fund roster. ShareBuilder 401k is committed to expanding access to retirement plans and leading more Americans to save through cutting-edge technology, low costs and quality education and support. View source version on Contacts Patrick Mendoza, mendozap@
