One of the best ways to save for retirement is to use your company’s 401(k). And it’s about to get even better in 2025.

With the turn of the calendar, some employees will be able to save even more using their 401(k). That means more tax savings in 2025 and more tax-free compounding for years to come.

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A special rule change laid out in the SECURE 2.0 Act from 2022 will go into effect on Jan. 1. The new rule increases the catch-up contribution limits for 401(k)s. The thing is, it only applies to a specific set of investors.

Here’s who can benefit and how much they’ll be able to contribute to their retirement savings in 2025.

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The new super catch-up contribution

The SECURE 2.0 Act modifies catch-up contributions for participants in 403(b), 457(b), and 401(k) plans. Catch-up contributions apply to anyone turning 50 years old or older in a given year. They’re allowed to contribute a bit more on top of the standard contribution limits for those plans.

For 2025, the standard catch-up contribution limit for 401(k) plans is $7,500. That means anyone who meets the age requirements can contribute a total of $31,000 to their workplace retirement plan.

The SECURE 2.0 Act increased the catch-up contribution for some employees to $10,000 or 150% of the standard catch-up contribution, whichever is greater. Since 150% of $7,500 is $11,250, that’s the new catch-up contribution limit in 2025 for select investors.

Here’s the catch. You’re only eligible to make this super catch-up contribution in 2025 if you’re between the ages of 60 and 63 (inclusive) at the end of the year. If you’re turning 64 in 2025, sorry, you just missed the boat. But if you’re about to celebrate your 60th birthday, you’ll have four years to make supersized contributions to your 401(k).

Should you take advantage of bigger catch-up contributions?

401(k)s aren’t necessarily the best vehicle for saving for retirement. They’re often laden with high fees and investing restrictions that can put them low on the priority list for many retirement savers once they’ve qualified for their company match.

But there’s a strong case to be made for those eligible for bigger catch-up contributions to take full advantage of them if they’re in a position to do so. In fact, 2025 may be the best year to take advantage of the higher contribution limit.

Someone in their early 60s is likely in a position earning more than they ever have in life, even when adjusting for inflation. Earning power generally peaks around this time. Putting money into a 401(k) allows them to defer taxes at their marginal tax bracket in their highest earning years. That may be worth paying the high fees associated with 401(k)s for a few years before retirement.

Importantly, some people won’t be able to take advantage of the tax deferral on catch-up contributions starting in 2026. Another component of the SECURE 2.0 Act requires those with incomes exceeding a specified threshold to put their catch-up contributions in a Roth 401(k) account. The threshold is indexed to $145,000 in 2023.

While a Roth account has its own advantages, it might not be as appealing at high income levels, especially if the 401(k) has high fees. If you could quickly roll over the funds into a Roth IRA with no fees, it makes it much more appealing, though. Generally speaking, funds in a Roth account are more tax advantageous than funds in a taxable account for someone over the age of 59 1/2 (the minimum age to withdraw earnings from a Roth account with no taxes or penalties).

The bottom line is those in their early 60s with the ability to save a bit extra for retirement should seriously consider taking advantage of the higher catch-up contribution limit in 2025. In the years that follow, catch-up contributions might not be as good of a deal, but still worthwhile for many.

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