Recent Changes Let Workers Save More
By Ascensus
With the arrival of a new year comes the availability of several SECURE 2.0 provisions that affect how workers can save for their retirement.
Enhanced Catch-Up Contributions
Age 50 Catch-Up Contributions
“Catch-up” salary deferral contributions to employer-sponsored retirement plans are nothing new. They have long been available to help older workers narrow the gap between what they have already saved, and what might be necessary for a secure retirement. Participants who reach age 50 by the end of the calendar year are eligible for an additional salary deferral contribution. These amounts are subject to annual cost-of-living adjustments (COLAs).
Eligible participants in SIMPLE plans may contribute an additional $3,500 for 2024 and for 2025. Under the SECURE 2.0 Act of 2022 (SECURE 2.0), some may be eligible for an increased catch-up contribution (see Increased SIMPLE Deferral Limits later, for more information).
Participants in SAR-SEP, 401(k), 403(b), and governmental 457(b) plans may contribute an additional $7,500 for 2024 and for 2025.
Super Catch-Up Contributions
To help workers closer to retirement save more, SECURE 2.0 increased the catch-up salary deferral contribution limit for those who reach ages 60–63 by the end of the calendar year. This new “super catch-up” contribution is effective for 2025 and later taxable years. These amounts are subject to annual COLAs.
Those participating in a SAR-SEP, 401(k), 403(b), or governmental 457(b) plan may—at these ages—contribute up to $11,250 in catch-up contributions for 2025.
Those participating in a SIMPLE plan may contribute up to $5,250 for 2025.
This super catch-up provision appears to be discretionary: plan sponsors are not required to offer the higher catch-up contribution limit to employees. Document providers and service providers may, however, choose to automatically link this increased catch-up amount to the availability of regular catch-up provisions. If the plan allows for them, then these increased amounts are automatically available to employees based on their age.
Increased SIMPLE Deferral Limits
Some SIMPLE IRA and SIMPLE 401(k) participants may also benefit from increased deferral limits, available to them based on the number of employees at their company and their employer’s election. Employers that sponsor a SIMPLE plan may allow increased salary deferral limits for their employees, starting in tax year 2024. Eligible employers include those who did not offer a 401(a), 403(a), or 403(b) plan to the same employees during a three-taxable-year period preceding the year that they established the SIMPLE 401(k) or SIMPLE IRA plan.
Employers that have no more than 25 employees who received $5,000 or more in the preceding calendar year will have the increased deferral and catch-up limits apply automatically. The increased deferral limit is $17,600 for 2024 and for 2025. The increased catch-up limit is $3,850 for 2024 and for 2025.
If an employer has 26-100 employees earning $5,000 or more in the preceding calendar year, the increased deferral limit is an optional provision that an employer can elect to offer. If the employer elects to apply this increased limit, the employer must also provide a higher matching contribution of four percent (increased from three percent) or an increased nonelective contribution of three percent (instead of two percent).
This increased deferral limit is available for tax years beginning after December 31, 2023. Employers must notify their employees of the increased limit within deferral election communications, as clarified in IRS Notice 2024-02. Employers with existing SIMPLE IRA plans must include the increased deferral limit in the Summary Description provided to employees no later than 60 days before the beginning of the plan, (e.g., November 2, 2024, for the 2025 plan year). Employers should also notify the IRA trustee/custodian of the increased limit.
Additional Nonelective Contributions to SIMPLE IRA Plans
In addition to a required employer matching or nonelective contribution, employers may make a SIMPLE IRA (not SIMPLE 401(k)) nonelective contribution of up to 10 percent of compensation, not to exceed $5,000 (indexed for inflation) annually per eligible employee. This optional contribution is in addition to any employee deferrals and the required employer contribution. Employers that choose to make the additional nonelective contribution must notify employees within the Summary Description.
2024 and 2025 Contribution Limits
The following table contains the 2024 and 2025 employer-sponsored retirement plan contribution limits.
Reporting Contributions
SEP and SIMPLE IRA contributions are reported a little differently than Traditional and Roth IRA contributions. Some employers may request that their contributions be marked or coded as a prior-year contribution. However, financial organizations must report contributions in the year in which they receive them and not the year for which the contribution is made. The financial organization does not make any distinction as to what year these contributions should be applied to. Employers are responsible for attributing contributions for the correct year when they file their taxes. Employers have until their business’s tax return deadline, plus extensions, to make an employer contribution.
Financial organizations must report SIMPLE IRA, SEP plan, Traditional IRA, and Roth IRA contributions separately on Form 5498, IRA Contribution Information. For information on reporting Roth SEP or Roth SIMPLE IRAs see IRS Offers Details on SECURE Act 2.0 Roth SEP and SIMPLE Provisions.
Reporting SEP Plan Contributions
Financial organizations must report SEP contributions (including Roth SEP contributions) and any SAR-SEP salary deferrals in Box 8, SEP Contributions, on Form 5498, IRA Contribution Information.
Reporting SIMPLE IRA Contributions
Employers are required to report participants’ SIMPLE IRA elective deferrals (including catch-up deferrals) on Form W-2, Wage and Tax Statement, with code S in Box 12. Financial organizations must report contributions (including Roth SIMPLE contributions) on Form 5498, combining salary deferrals and employer contributions in Box 9, SIMPLE contributions.
These SECURE 2.0 provisions allow some employees to save more for retirement. The landscape of retirement keeps changing. And we’re here to equip you to help your clients.
