Nothing SIMPLE About It: 3 Different Catch-Up Limits for 2025

Wednesday, November 20, 2024

Ian Berger, JD
IRA Analyst

Here’s something you can only find in the Internal Revenue Code: Starting in 2025, there will be not one, not two, but three different catch-up limits for older SIMPLE IRA participants.

Like IRAs and workplace plans like 401(k)s, SIMPLE IRAs allow annual elective deferrals up to a dollar limit and “catch-up” contributions for those who reach age 50 or older by the end of the year. Both of these limits are indexed for inflation. For 2024, the regular elective dollar limit is $16,000, and the catch-up limit is $3,500 – for a total limit of $19,500. For 2025, the regular elective deferral limit increases to $16,500, but the catch-up remains $3,500 – for a total of $20,000.

But Congress could not leave well enough alone. Starting this year, the SECURE 2.0 legislation bumped up both of these limits by 10% for many – but not all – SIMPLE IRA plans. The 10% bonus applies to plans sponsored by companies with 25 or fewer employees – which includes most SIMPLE plans. But it also applies to companies with more than 25 employees if the company agrees to increase its SIMPLE IRA employer contribution to a level higher than usually required. (If the employer matches deferrals, the match must be up to 4% of pay instead of the usual 3% of pay. If the employer contributes to all eligible employees, the contribution must be 3% of pay instead of the usual 2%.) The 10% bonus boosted the 2024 regular deferral limit to $17,600 and the catch-up limit to $3,850 – for a total limit of $21,450. Both limits are indexed for inflation, but because of indexing rules, they will remain $17,600/$3,850 for 2025.

Adding even more complexity to the mix, starting in 2025 SIMPLE IRA participants turning 60, 61, 62 or 63 by the end of a calendar year can make an even higher catch-up contribution for that year. This “super catch-up” is $5,250 (150% of $3,500 – the 2025 regular catch-up limit.)  

So, if you’re an older SIMPLE IRA plan participant, where does that leave you for 2025 (besides confused)? Assuming your plan already allows the standard $3,500 age 50-or-older catch-up (as most do), here are the rules for increased catch-ups for 2025:

  • If you’ll be between ages 50 and 59 OR age 64 or older on December 31, 2025 and your company has 25 or fewer employees, you can defer up to $3,850 of catch-ups (on top of regular deferrals of $17,600).
  • If you’ll be between ages 50 and 59 OR age 64 or older on December 31, 2025 and your company has more than 25 employees, you’ll be eligible for catch-ups up to $3,850 (on top of regular deferrals of $16,500) only if your employer elects to make a higher-than-usual company contribution (as outlined above). If your employer doesn’t, your catch-up limit will be the standard $3,500 (on top of regular deferrals of $16,500).
  • If you’ll be between ages 60 and 63 on December 31, 2025, you can defer up to $5,250 of catch-ups (on top of regular deferrals of either $17,600 or $16,500). It doesn’t matter how many employees work for your company or if the plan offers the higher company contribution.

SIMPLE, isn’t it?

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