Preparing for 2025: How catch-up contributions can empower an aging workforce

As we approach 2025, employers and employees alike should be aware of the changes brought by SECURE 2.0. This legislation is set to reshape retirement planning for those approaching the twilight of their careers. The opportunity to make enhanced catch-up contributions under SECURE 2.0 is a powerful tool for companies seeking to retain and support their aging workforce.

The power of catch-up contributions

Traditionally, catch-up contributions have been a popular feature of employer-sponsored retirement plans, permitting employees aged 50 and above to contribute extra amounts to their 401(k) or similar plans. In 2025, the standard catch-up contribution limit for those aged 50 and older will remain at $7,500.

Starting in 2025, participants aged 60 to 63 will be allowed to make significantly larger catch-up contributions to their retirement plans. These individuals will have the option to contribute up to $11,250 annually or 150% of the standard age 50 catch-up amount, whichever is greater. Similarly, under SECURE 2.0, a higher catch-up contribution limit of $5,250 will apply for employees aged 60 to 63 who participate in SIMPLE plans. 

This increase comes at a critical time in the lives of older workers, empowering them to make up for lost time, whether due to career interruptions, late starts on retirement saving, or simply the need to boost their nest eggs for a more secure retirement.

Adapting to legislative changes

While the changes in catch-up contribution limits present an opportunity for older employees, they also bring challenges for employers. By 2026, catch-up contributions for high earners – those making over $145,000 annually – will need to be made on a Roth basis. This means that contributions will be made with after-tax dollars, providing tax-free growth and withdrawals in retirement, which can be a significant advantage for those in higher tax brackets.

For workers earning less than $145,000 annually, the choice between Roth and non-Roth catch-up contributions remains in place, allowing flexibility based on individual tax strategies. Non-Roth contributions are made pre-tax, reducing taxable income in the year contributed, whereas Roth contributions offer tax-free growth and withdrawals in retirement. Employers and employees alike should carefully evaluate which option aligns best with their financial goals.

Employers should begin adapting their retirement plans now to accommodate these adjustments, ensuring that their payroll and HR systems are capable of handling Roth contributions and the increased catch-up limits.

Why this matters now

The need for augmented catch-up contributions is more urgent than ever. It is projected that the labor force participation rate for those aged 65 to 74 will grow faster than any other age group over the next decade. This trend underscores the reality that many Americans are either choosing or needing to work longer. 

Offering a financial lifeline in the form of increased catch-up contributions is a necessity for employers who want to attract and retain older workers. This not only benefits the aging workforce by providing a critical boost to their retirement savings, but it also helps companies leverage the experience and skills of seasoned employees, creating a more stable and knowledgeable workforce. 

Offering financial wellness

Embracing the new regulations under SECURE2.0 is an opportunity to demonstrate commitment to employee financial wellness. Employers that proactively modify their retirement plans to include the new catch-up contribution limits and Roth conversion options can position themselves as leaders in supporting an aging workforce. This can lead to increased employee loyalty, reduced turnover, and attracting top talent who value comprehensive retirement benefits.

Furthermore, education will be key in helping employees understand and take advantage of these new opportunities. For many employees, especially those nearing retirement age, navigating these shifts can be daunting. Employers could consider providing financial planning resources, workshops, or one-on-one consultations to guide their workforce through the nuances of SECURE 2.0’s provisions. Issuing clear, actionable steps can make a significant difference in helping them maximize their retirement savings.

Empowering an aging workforce

As we head into 2025, it is crucial for employers to view these legislative changes not as a compliance burden but as a strategic advantage. For those aged 60 to 63, the ability to contribute more towards retirement savings is a game-changer, giving a last-minute boost to their financial security. For employers, adapting to these adjustments can enhance their benefits offerings, demonstrating a commitment to employee well-being and setting themselves apart in a competitive labor market.

Now is the time for companies to start planning for these shifts, ensuring they are ready to accommodate the new limits and Roth requirements. By doing so, they can help empower an aging workforce and prepare their businesses for a brighter, more secure future.