Your 401(k) Could Soon Get a $10,000 Catch-up Boost

secure act catchup contributions

The SECURE Act 2.0 – a follow up to the 2019 bill that made myriad changes to the way Americans save for retirement – passed in the House this week, meaning that if it gets approved by the Senate it will go to President Joe Biden for his signature. There are various important provisions in this bill, but one that greatly impacts those who are nearing retirement is the increase to the catch-up contributions allowed in retirement plans. There are specifics each type of retirement plan – discussed below – but what it comes down to is this: if you’re between ages 62 and 64, you might soon be able to put a bigger chunk of your income into a retirement plan. For help with retirement planning, including maximizing catch-up contributions, consider working with a financial advisor.

Retirement Plan Contribution Limits Explained

There are limits on how much you can contribute to a retirement plan each year. Here are the limits for 2021 and 2022 for some of the most popular and common retirement plan types:

  • 401(k) Plan: $19,500 for 2021 and $20,500 for 2022

  • Traditional IRA: $6,000 for 2021 and 2022

  • Roth IRA: $6,000 for 2021 and 2022

  • SIMPLE IRA: $13,500 for 2021 and $14,000 in 2022

You can only contribute up to these limits for any tax year, which coincides with the calendar year.

Retirement Plan Catch-Up Contributions Explained

secure act catchup contributions

There is a notable exception to the above limits, though – catch-up contributions for those who have reached age 50. These allow older people to contribute more to their plans as they approach retirement, giving them a better chance of a secure retirement – especially if they weren’t able to save as much as they should have in the earlier years of their careers. Here are the current catch-up contribution totals:

  • 401(k) Plan: $6,500 in 2021 and 2022

  • Traditional IRA: $1,000 in 2021 and 2022

  • Roth IRA: $1,000 in 2021 and 2022

  • SIMPLE IRA: $3,000 in 2021 and 2022

SECURE Act 2.0 Catch-Up Contribution Changes

Among other changes, the SECURE Act 2.0 will increase the amount of catch-up contributions allowed for some older Americans, namely those who are 62, 63 or 64. Here are the proposed increases:

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  • 401(k) Plan: $10,000

  • Traditional IRA: No set increase, but indexes current $1,000 catch-up limit to inflation.

  • Roth IRA: No set increase, but indexes current $1,000 catch-up limit to inflation.

  • SIMPLE IRA: $5,000, indexed to inflation.

These proposed super-sized catch-up contributions are only three years. For 65-year-olds and beyond, it’s back to the regular catch-up contribution limits.

What This Means

secure act catchup contributions

secure act catchup contributions

For retirement savers significantly below age 62, this doesn’t mean much – you can keep saving as you have been, and you should make sure to save as much as you can to ensure a fully-funded retirement.

If you are at or approaching age 62, though, this gives you an extra chance to put aside money so that you can enjoy your golden years without having to keep working or worry too much about money. That catch-up boost when you’re 62, 63 and 64 can put in you a more secure position to retire. A financial advisor can help you figure out just how much of this catch-up contribution increase you should take advantage of.

The Bottom Line

The SECURE Act 2.0 recently passed the U.S. House of Representatives. Among other things, it raises the catch-up contribution limits for retirement savers between ages 62 and 64, allowing these older savers to put aside more as retirement approaches. Keep in mind this bill has only passed the House; it still needs to get through the Senate and be signed by President Biden before it takes effect.

Retirement Planning Tips

  • A financial professional can help you make all the right retirement planning decisions. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • If you have access to a 401(k) plan, make sure you use it – and make sure you take advantage of any free money available as a company match.

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