New year, new rules: How to take advantage of higher catch-up contributions

Summary

• Nearly half of Generation X feels unprepared for retirement, with the median savings for 55-year-olds at just $50,000, as many of them balance costs of children's education and caring for elderly parents.
• New SECURE 2.0 Act rules allow workers age 60 to 63 to make “super catch-up” contributions of an additional $3,750 annually to their workplace retirement accounts, enabling total contributions up to $34,750 in 2025.
• Higher earners making $145,000+ should consider maximizing catch-up contributions in 2025 because, starting in 2026. these contributions must be made to Roth accounts on an after-tax basis for this income group.

For too long, Generation X has been dazed and confused when it comes to saving for retirement.

Stuck financially between paying college tuition for their kids and footing the cost of care for their elderly parents, 48% of Gen Xers now think it’ll take a “miracle” to achieve a secure retirement, according to one report.¹  Another report says the median amount of retirement savings for 55-year-olds is a mere $50,000, which is probably why a quarter of those 55-year-olds say they’re counting on some financial help in retirement from their kids.²

“Gen X is next up for retirement, but too many of them are unprepared,” says Melissa Shaw, a TIAA Wealth Management advisor in Palo Alto, Calif.

Understanding the SECURE 2.0 Act changes for 2025

The good news is that on Jan. 1, new rules went into effect that can help Gen X workers get their retirement savings back on track. Under preexisting rules, workers under age 50 can contribute a maximum of $23,500 in 2025 to their 403(b), 401(k) or other workplace savings accounts, and those 50 and older can contribute an additional $7,500 in so-called catch-up contributions.

But starting this year, thanks to a provision in the SECURE 2.0 Act of 2022, there’s now a super catch-up contribution—an additional $3,750 a year—available to older workers age 60 to 63. That means if you turn 60, 61, 62 or 63 this year, you can contribute as much as $34,750 to your workplace retirement account. The year you turn 64, the catch-up limit reverts to $7,500.

Navigating catch-up contribution rules for Generation X

Of course, not everyone can afford to defer $23,500 of salary, never mind $34,750. However, the 60-to-63 age group targeted by the super catch-up tends to be people who are at or near peak earnings—those who can most afford to sock away extra money for retirement. “If you’re not living paycheck to paycheck, and if you already have an emergency fund, then putting a little bit more money away makes sense for almost everyone—especially those who haven’t been saving enough for retirement,” says Jonathan Fishburn, TIAA director for wealth planning strategies.

Even if you need to tap nonqualified accounts (such as a bank account or a taxable brokerage account) to make up for some lost income, there’s still a case to be made for taking full advantage of the super catch-up. Say you’re currently in the 32% federal tax bracket. You’ll save $1,200 in taxes by making the super catch-up now and then enjoy tax-deferred growth on the full contribution until the money is withdrawn—by which time you’ll probably be in a lower tax bracket.

That tax-deferred growth can add up quickly, even for someone only 10 years from retirement. Assuming a 7% average annual return in their 403(b), a 60-year-old who contributes an extra $3,750 for four consecutive years would see their $15,000 in total contributions grow to $25,000 by age 70.

The new catch-up rules do have a catch—at least for those making $145,000 a year or more. Starting in 2026, catch-up contributions made by high earners age 50 and above must be made into Roth-style workplace retirement accounts on an after-tax basis. Given that this is the last year for 50-plus high earners to make catch-up contributions on pretax basis, there’s an incentive to max out catch-up contributions in 2025 . “Next year,” says Fishburn, “they may not want to do any catch-ups at all.”

We’re here to help.

Talk to your TIAA Wealth Management advisor if you have questions about making catch-up contributions to your workplace retirement account. Don’t yet have an advisor? Schedule an appointment.