Someone who is 50 or older is able to set aside more money into a 401(k) than someone who is under 50. Called a "catch-up contribution," the idea is to get more money working for you in a tax-advantaged way before you retire.

On Sept. 15, the IRS and the Department of the Treasury issued final regulations that incorporate SECURE 2.0 Act of 2022 changes to catch-ups.

People who are approaching ages 60 to 63 will benefit from a special increased catch-up. This change applies to 401(k)s as well as other eligible retirement plans, such as 403(b)s. See tinyurl.com/5n7zysax.

First, a little background.

Catch-up contributions first came into being as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (tinyurl.com/3tm3kzk7) as a means of helping older workers save more for retirement. The initial catch-up amount was $500, with a planned increase after a few years to $1,000.

In 2025, the maximum amount that a person under age 50 can contribute to a company retirement plan is $23,500; someone who is 50 or older can kick in an additional $7,500 as a catch-up contribution for a total contribution of $31,000.

Under the newly finalized regulations, effective 2025, those who reach ages 60 through 63 this year have a catch-up limit of $11,250 instead of $7,500, meaning the total contribution for that age cohort is $34,750. When someone turns 64, the catch-up limit falls back to the "regular" catch-up contribution.

There will be a yearly cost-of-living adjustment to the catch-up limit for ages 60 to 63 after this year.

You might recall that there was another SECURE 2.0 provision involving catch-up contributions related to those 50 and older who earned more than $145,000 in the previous year. The provision, which was set to start in 2024, called for those catch-up contributions to be designated as post-tax Roth contributions as opposed to pre-tax contributions.

As to Roth catch-up contributions, the final regulations followed proposed regulations published in January 2025 (tinyurl.com/3vfetwsv).

A Roth catch-up contribution would be similar to any Roth contribution in that it would not be "excludible from a person's gross income," and the contributions would need to be held "in a designated Roth account." In addition, a retirement plan "would need to permit a participant subject to a deemed Roth catch-up election to elect to cease making additional elective deferrals."

As for the implementation of the Roth catch-up contribution, IRS Notice 2023-62 (tinyurl.com/3ufhyxdp), which was released in August 2023, indicated that there would be "an administrative transition period" of two years after Dec. 31, 2023, for the requirement, meaning the Roth catch-up contributions would not start in full until 2026.

The final regulations provisions related to the Roth catch-up requirement "generally apply to contributions in taxable years beginning after Dec. 31, 2026," citing the IRS news release about the final regulations (tinyurl.com/jjvdysa3). However, "the final regulations provide a later applicability date for certain governmental plans and plans maintained under a collective bargaining agreement."

In addition, the regulations "also permit plans to implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good faith interpretation of statutory provisions."

When the proposed regulations were released, they elicited more than 20 comments over a two-month period.

One comment offered some interesting thoughts. The person recommended that the catch-up age should be raised from 63 to at least 65, if not 67, saying that it would take strain off Social Security "and people's dependence on it." The person added that "I am 64 and still in need of 'catching up' on retirement preparation, especially given the inflation of the last few years. This is true also given that the dollars I have put into retirement no longer have the value they did."

If you are age 60 to 63, take this opportunity to contribute more to your 401(k), keeping in mind that your maximum is $34,750.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

If you are a young person starting out in your first job, you’ll want to be able to make informed decisions that can lead to long-term financial success.

Being on top of personal finances involves two time dimensions -- the present and the distant future. You act in the present, and what you do on a day-to-day basis dictates the future. It’s that basic. And it’s this little piece of information that determines what life looks like 10, 20 and 50 years from now.

Your starting point: A realistic way to be intentional when handling take-home pay. Call it a “budget,” or better yet, a “tracker.” What you want is to track where your money goes.

If you track your expenses and your income for three months, you’ll have valuable information that can lead to good decisions.

Let’s review some tools together.

Bank of America’s Better Money Habits website lists steps a person needs to consider, including calculating net income, tracking spending and setting realistic goals (tinyurl.com/muxpy8xz).

You’ll also find budgeting ideas such as a 50/30/20 strategy (50% for needs, 30% for wants and 20% for savings or debt) or a pay-yourself-first plan (put an amount in savings before paying bills or making purchases).

The Federal Trade Commission (tinyurl.com/bd655ypb), the Navy Federal Credit Union (tinyurl.com/3j8k5uf5) and financial technology company Intuit (tinyurl.com/47y3ktxk) offer budget worksheets. You can also find budget-tracking cellphone apps, such as Rocket Money and YNAB (You Need a Budget).

Once you have a budget, think about managing cash flow. One method offered by the credit reporting agency Experian is a personal cash flow statement (tinyurl.com/5uydb75a). The statement has two sections: a balance sheet (what you own versus what you owe) and a cash flow statement (your cash inflows and outflows).

Be alert to overuse of credit. It’s ever so easy to pay for everyday expenses with a credit card -- and if you are not mindful, it’s ever so easy to borrow money without thinking about it.

Before you use credit, be sure to understand how to repay it. You can easily run the cost of borrowing by using this Discover interest calculator -- tinyurl.com/yu83jfu6.

Take this example: You have $1,000 in credit card debt with interest of 29% that you want to pay off in 12 months. If you pay $25 a month, it will take you 159 months (13.25 years) to pay off interest of $2,953 on the $1,000 you borrowed. (The 29% example is real. When was the last time you checked your credit card interest rate?)

The consumer financial services company Bankrate’s “Effective strategies for getting out of debt” points out that paying off debt “requires commitment, patience and a little bit of grace” (tinyurl.com/bur97awd). Personally, I would strongly recommend avoiding debt for consumer purchases.

Borrowing to buy a house is a different story, raising the importance of credit scores, which assess a lender’s risk of extending a loan to you. A good resource is FINRA’s “How Your Credit Score Impacts Your Financial Future” (tinyurl.com/4emdua64). FINRA oversees member broker-dealers who do business in the U.S.

If you are looking to pay down debt, Bankrate highlights a few strategies: debt snowball (pay the minimum required on all debt, but put added dollars to the one with the smallest balance); debt avalanche (a similar plan, but the added dollars go to the debt with the highest interest rate); and debt consolidation (all debt is combined into one new loan with one interest rate and one payment).

To make wise financial decisions when starting your career, being mindful is the secret.

Keeping track is the method. Everything else will fall into place if you just pay attention day to day and month by month. Time will pass. The future will unfold. Where you find yourself decades from now will depend on what you do all the “todays” from now until then.

The topic of making sound decisions is part of a series of virtual presentations I am giving through the Greenwich Library. For information, please visit juliejason.com/events/upcoming-events.

On another note, the judges of the 401(k) Champion Competition have picked their winners for 2025. See www.401kchampion.com. Congratulations to all four champions!

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Should you care about National 401(k) Day? Celebrated on the Friday after Labor Day (symbolizing the transition from labor to retirement), this year, it's Friday, Sept. 5.

Because 401(k)s are special to me personally, I'm all for a celebration. The first time I gave 401(k)s some real attention was decades ago when a client of mine, a lawyer, told me he was not participating in his 401(k) at work, even though the plan had a dollar-for-dollar match.

We talked, and I realized I needed some ammunition to convince him that he could not do as well saving for retirement on his own, no matter how capable he was as an investor -- you can't beat that dollar-for-dollar match. I walked over to the local bookstore to make an appropriate purchase and found not a single 401(k) book on the shelf.

You can guess where that led me. My very first book was "You and Your 401(k): How to Manage Your 401(k) for Maximum Returns," which was published by Simon & Schuster in 1996. The book compared a 401(k) contribution to an investment someone could make on his own outside of a 401(k).

I sent the manuscript to the then-president of the Profit Sharing/401(k) Council of America just for fun. He came back with this quote, which appeared on the cover: "Americans must take control of their financial futures using tools like 401(k) plans. 'You and Your 401(k)' offers excellent practical ideas about how to maximize the benefits of saving and investing through 401(k)s."

The point is that Americans who work for companies offering 401(k)s do need to understand how 401(k)s work simply because these plans can do more for you than you can do on your own. That's why 401(k) Day exists, to "engage plan participants in retirement planning," according to the Plan Sponsor Council of America (tinyurl.com/4zbzx66z).

Getting back to my client, although he was a senior executive in a major company, he did not take the time to do the studying on his own. If we hadn't talked, he may not have taken advantage of the immediate compounding that a dollar-for-dollar match offered.

So, let's celebrate 401(k) Day together by asking yourself some important questions: Do you need to save for retirement? Are you participating in your company's 401(k)? Are you taking full advantage of your company's matching contribution? Are you maximizing your salary deferral? If you just started working at a new job, have you checked out eligibility requirements? Do you understand how pre-tax contributions affect income taxes? What about income taxes, especially when you start to withdraw funds?

Everyone who works for a company that sponsors a 401(k) plan needs to know the answers to these questions. You owe it to yourself to participate and maximize the benefits your plan offers.

After you do your initial homework, you'll find enrolling in the 401(k) easy enough. Your human resources department will help.

When you enroll, you'll have contributions made automatically through payroll deductions (salary deferrals). Just focusing on pre-tax contributions (as opposed to after-tax contributions), the dollar amount that you defer escapes your W-2. If you compare your W-2 before and after enrolling, you'll see your taxable income decline by the amount of your salary deferral. That translates into tax savings.

You'll choose investments from a menu offered by the plan. The 401(k) provider will offer information about the options available. If you have limited or no experience as an investor, consider target date funds if they are offered by the plan.

The idea is to have your 401(k) give you years of tax-advantaged and matched (potentially) savings for retirement. After retirement, withdrawals, after taxes, will help pay your bills.

Because I am a fan of 401(k)s as a tool to help fund retirement, I go one step further in my support of 401(k) education by sponsoring the national 401(k) Champion Essay Competition. Winners are announced on 401(k) Day. These are 401(k) participants who "love" their 401(k)s. If you are curious, check out the announcement of this year's winners at 401kchampion.com. And if you want to assist with this educational cause, let me know. I can always use help in spreading the word about how to take full advantage of the benefits 401(k)s offer.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION