Strategies for Bolstering Your Retirement Investments
In the approaching year, 2025, individuals aged 50 and above can take advantage of catch-up contributions to boost their retirement savings, particularly in 401(k) and similar employer-sponsored plans. Here's a breakdown of the catch-up contribution limits and how they vary by age group.
For those aged 50 to 59 (and also those 64 and older), an additional catch-up contribution of $7,500 is available, taking the total possible contribution to $31,000. Those aged 60 to 63, however, qualify for an enhanced catch-up contribution limit of $11,250, which is 150% of the standard $7,500 catch-up amount, making their total possible contribution $34,750.
It's important to note that these limits apply assuming the individual's plan permits catch-up contributions. The enhanced catch-up contributions for ages 60–63 were introduced by the SECURE 2.0 Act starting in 2025. For the 60 to 63 age group, the catch-up contribution is either $11,250 or greater if the calculation of 150% of the standard catch-up is higher, but in 2025, it's fixed at $11,250 based on existing catch-up of $7,500.
For traditional and Roth IRAs, the catch-up contribution remains at $1,000, with a standard limit of $7,000. However, a rule change starting in 2026 affects planning for 2025 contributions for those earning over $145,000 (FICA). Employees age 50+ with wages over this threshold must make their catch-up contributions on a Roth (post-tax) basis.
When it comes to investment choices, Exchange-traded funds (ETFs) are good choices for taxable accounts due to their lower capital gains distributions compared with actively managed mutual funds. On the other hand, actively traded mutual funds that throw off a lot of taxable capital gains distributions are better suited for tax-advantaged accounts.
Municipal bonds and municipal bond funds are also good choices for taxable accounts because their interest payments are often exempt from federal taxes. Bonds and bond funds, however, are better candidates for tax-deferred accounts due to the taxation of interest at the ordinary income tax rate, which could be as high as 37%.
Another strategy to consider is the "mega backdoor Roth IRA," which allows you to convert after-tax contributions to a Roth IRA or, if your plan offers one, a Roth 401(k). With this strategy, earnings will grow tax-free, and withdrawals will be tax-free as long as you're 59-1⁄2 and have owned the Roth for at least five years.
Health savings accounts (HSAs) provide a tax-advantaged way to save for health costs in retirement. To qualify for HSA contributions, your health plan must have a minimum deductible of $1,650 for individual coverage or $3,300 for family coverage, with out-of-pocket expense limits of $8,300 for individual coverage or $16,600 for family coverage. In 2023, you can contribute up to $4,300 to an HSA for individual coverage or $8,550 for family coverage, with a $1,000 catch-up contribution for those aged 55 or older.
It's essential to consult with a certified financial planner who has experience working with high-income investors for strategies like the mega backdoor Roth strategy. With careful planning and the right investment choices, you can optimise your retirement savings and ensure a comfortable retirement.
In the realm of personal-finance and investing, an individual could exploit the "mega backdoor Roth IRA" strategy to convert after-tax contributions into a Roth IRA or Roth 401(k), enabling tax-free growth and withdrawals after age 59-1⁄2 with a five-year holding period. This strategy, however, may require consultation with a certified financial planner who specializes in working with high-income investors.
In 2025, individuals aged 60 to 63 can take advantage of Defi and finance opportunities by making catch-up contributions to their 401(k) or similar employer-sponsored plans, with a maximum limit of $34,750, thanks to the enhanced catch-up contribution provisions set forth in the SECURE 2.0 Act.
