On December 29, 2022, Biden signed H.R.2617, the Consolidated Appropriations Act of 2023, into law. Hidden within this appropriations bill are several retirement provisions under the section named “Division T – The SECURE 2.0 Act of 2022” (PDF Page 817).

In this series, I am reviewing the major changes created by this act. This article is about “SEC. 109. HIGHER CATCH-UP LIMIT TO APPLY AT AGE 60, 61, 62, AND 63” (starts on PDF Page 832).

Prior to this amendment, anyone over the age of 50 was permitted a catch-up amount which increased both their employee elective deferral limit and their total retirement contribution limit. In tax year 2023, this catch-up amount was set to $7,500 for most retirement plans, bringing the total employee elective deferral up to $30,000 for those over age 50, and was set to $3,500 for SIMPLE plans.

Starting in 2025, this amendment permits those between the ages of 60 and 63 (as measured on December 31) to contribute up to 150% of the catch-up amount rather than the usual 100%. The amendment as written also has a floor for the maximum catch-up contribution, but regular inflation adjustments have already made 150% surpass this floor, so it is unlikely to be needed.

This means that seniors born between 1962 (2025 minus 63) and 1965 (2025 minus 60) will be the first to be able to take advantage of these plus-sized limits. Those born in 1962 will have precisely one year (tax year 2025) where they can take advantage of the plus-sized catch-ups before they are aged out of this benefit by reaching their 64th year.

Between the current year (2023) and 2025 the contribution limits will be adjusted for inflation twice. However, using the 2023 catch-up amounts for 401(k) plans, this ruling is the difference between a regular catch-up contribution maximum of $7,500 and a special catch-up contribution maximum of $11,250 (1.5 times $7,500). Totaled with the base deferral limit of $22,500, this plus-sized catch-up contribution brings the total to $33,750 of maximum deferrals.

Again, the amendments made by this section apply to taxable years beginning after December 31, 2024. This means that these new catch-up rules will first apply for tax year 2025.

In tax year 2025 though, the code is amended in the following three ways.

For retirement plans other than SIMPLE plans, the new Section 414(v)(2)(B) would read:

For purposes of this paragraph—
(i) In the case of an applicable employer plan other than a plan described in section 401(k)(11) or 408(p), the applicable dollar amount is $5,000 (the adjusted dollar amount, in the case of an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year).

(ii) In the case of an applicable employer plan described in section 401(k)(11) or 408(p), the applicable dollar amount is $2,500 (the adjusted dollar amount, in the case of an eligible participant who would attain age 60 but would not attain age 64 before the close of the taxable year).

Then, the adjusted dollar amount is defined in the new subsection E as:

(E) ADJUSTED DOLLAR AMOUNT.—For purposes of subparagraph (B), the adjusted dollar amount is—
(i) in the case of clause (i) of subparagraph (B), the greater of—

(I) $10,000, or
(II) an amount equal to 150 percent of the dollar amount which would be in effect under such clause for 2024 for eligible participants not described in the parenthetical in such clause, or

(ii) in the case of clause (ii) of subparagraph (B), the greater of—

(I) $5,000, or
(II) an amount equal to 150 percent of the dollar amount which would be in effect under such clause for 2025 for eligible participants not described in the parenthetical in such clause.

Finally the cost of living adjustment is amended as follows:

(C) Cost-of-living adjustment

In the case of a year beginning after December 31, 2006, the Secretary shall adjust annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph (B)(ii) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2005, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.

In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E) for increases in the cost-of-living at the same time and in the same manner as adjustments under the preceding sentence; except that the base period taken into account shall be the calendar quarter beginning July 1, 2024.

All in all, this amendment seems like an odd amendment. Why does it start at age 60? Why do those age 64 and older not get the benefit? However, that is the tax code for you.

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