Retired Military Finances 201: The New "Extra-Mega-Special-Bonus Catch-up Contribution"
Retirement Funding TSP TaxesWhen you were on active duty in the military did you ever just kind of shake your head at something and move on? I know the answer to that question. It's kind of the same thing with the Extra-Mega-Special-Bonus Catch-up Contribution. Well first of all, that's not what it is really called. That is a name coined by Jeff Levine one of the really smart guys I listen to for my continuing education. It is his way of shaking his head at a new provision from SECURE 2.0 that goes into effect in 2025, which doesn't really seem to make a lot of sense.. While I like the name, Extra-Mega-Special-Bonus Catch-up Contribution, it is a bit of a lift to type it, so let's just call it increased catch-up contributions (the IRC doesn't specifically name it).
What are the Increased Catch-up Contributions?
The increased catch-up contributions apply to those age 60, 61, 62 and 63. And as is typical for most age-based requirements in the tax code, it is based on your age at the end of the tax year.
Why Congress selected those ages and only those ages is anyone's guess. I'll just shake my head.
How Much Can I Contribute if I Qualify for Increased Catch-up Contributions?
If you are covered by a plan like a 401(k), 403(b) or TSP (any employer plan other than a SIMPLE IRA or SIMPLE 401(k)), your increased contribution limit for the year is 150% of the "normal" limit or $10,000, whichever is greater. In 2025, the normal catch-up contribution is $7,500. 150% of $7,500 is $11,250 and since that is greater than $10,000 the increased catch-up limit will be $11,250. The $10,000 limit is indexed for inflation, so at some point it may become greater than 150% of the normal catch-up.
For those covered by a SIMPLE IRA or SIMPLE 401(k), the increased catch-up is $5,000 (indexed for inflation) or 150% of the standard catch-up, whichever is greater. In 2025 the catch-up contribution is $3,500, so 150% ($5,250) is greater than the $5,000 and the increased catch-up limit will be $5,250.
Just to make sure there isn't any confusion, a SIMPLE IRA is not the same as your IRA. It is an employer provided plan.
How do I Make Increased Catch-up Contributions?
It is important to note that employers aren't required to offer catch-up contributions. Therefore, you may not have this option even though the law allows it. Talk to your HR department or your retirement plan provider to find out if you can make extra contributions and how to do it.
Military Finances are Different
The Extra-Mega-Special-Bonus Catch-up Contribution applies to all taxpayers of the appropriate age. That isn't always the case. Active and Retired Senior Military Officers and NCOs have unique financial benefits and opportunities. That's why we think you should work with a financial planning firm that specializes in those military and veterans benefits each and every day. If you'd like to find out how we work with people just like you, use the button below to schedule a free initial consultation.
If you found this article useful, you might like the following blog posts:
Retired Military Finances 201: TSP Annuities
Retired Military Finances 101: Don't Lose Your TRICARE
Retired Military Finances 101: Understanding Social Security Benefit Taxation