Enhanced 401(k) Contributions

Starting in 2025, there will be allowed an enhanced (or perhaps super-duper) 401(k) contribution limitation for a select part of our population. Most, if not all, of you are aware that if you are age 50 and over, you are allowed an additional contribution to your 401(k) plan. That amount currently is at $7,500. That situation continues, but now is especially enhanced, increased, for those select few who will be ages 60 thru 63 in the year 2025 and forward. Thus, for anyone born in the years 1962 thru 1965, you will be allowed to increase the 401(k) contribution you make. That will continue each year going forward – but only for those who are ages 60-63 in those years. Thus, once you reach the year in which you will turn 64, you will no longer be allowed to make these additional contributions. And, until the year in which you reach age 60, you will not be allowed to make these extra contributions. This applies not only to 401(k)s, but also 403(b)s. 

Well, just how enhanced or super are these additional contributions? For the year 2025, you are looking at not only the normal 401(k) limit of $23,500, but in addition, as much as another $11,250 – which would bring the total maximum contribution to $34,750 – if you meet this age restriction. 

The intent here clearly is to give those getting close to retirement an opportunity to boost what they’ve got put away in 401(k) or 403(b) plans. This enhanced contribution does not apply to IRAs, and of course is limited for all of us to just a 4-year span when these enhanced contributions can be made. Realistically, this is not practical for many people. Most people can’t afford the basic $23,500 (for the year 2025) general contribution limitation. Even fewer can afford the normal enhanced additional $7,500. Even fewer than that of course can afford to go as high as $34,750 of a contribution out of their pay. Furthermore, it is my belief (based on interactions with many clients of many varying economic situations) that those who can afford to do this are generally more well off, and ironically less in need of this type of enhanced contribution. Thus, all good intentions aside, I don’t think this is going to help that many people – certainly not help the people who really need it.

If you have any questions contact Kal Barson at kal@barsongroup.com.