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According to the Senate's own summary of Secure 2.0 (italics added for emphasis):

Section 109, Higher catch-up limit to apply at age 60, 61, 62, and 63. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits. The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE plans for which the limit is $3,000. Section 109 increases these limits to the greater of $10,000 or 50 percent more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. Section 109 is effective for taxable years beginning after December 31, 2024.

The "enhanced" catch-up limit for the 60-63 set for 2025 was $11,250. But while the base catch-up increased from $7500 to $8000 in 2026, the enhanced limit for 2026 remained $11,250, rather than rising to $12,000 (50% above the new $8K limit, matching inflation).

Why did the limit for the enhanced catch-up not increase to $12,000 (or thereabouts; the hidden factors in the inflation-adjusted and rounded value might not be exactly $12,000, but it should have increased at least a little)? The only thing I can think of is that the summary is wrong, but the full bill's changes seem to make no distinction between the raw dollar value and the computed dollar value of 50% above the regular limit when it comes to indexing for inflation:

‘In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E)

and clauses (i) and (ii) are the clauses that select the greater of the fixed and computed value from their respective (I) and (II) subclauses; if the indexing was only supposed to apply to the fixed dollar values, I'd think they'd say "under subclause (I) of clauses (i) and (ii) respectively of subparagraph (E)", or some other lawyerly way to more clearly specify that only the raw dollar value was indexed for inflation, not the result of the max(10000, 1.5 * base_limit). The bill text I found might be from an earlier draft (it computes the value from 150% of the 2024 limit, while the summary specifies 150% of the 2025 limit), but the other versions I'm finding (e.g. this House bill are clearly even more incorrect, setting the age ranges differently, and putting the changes in Section 108, not Section 109).

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  • Note the summary is worded in a way that creates ambiguity. Is it "increases these limits in 2025" or "more than the catch-up amount in 2025"? Commented 2 days ago

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The IRC Sec. 414(v)(2)(E) (referring to the additional catch-up contributions for 401(k) plans) says this:

(E) Adjusted dollar amountFor purposes of subparagraph (B), the adjusted dollar amount is—

(i) in the case of clause (i) of subparagraph (B), the greater of—

(I) $10,000, or

(II) an amount equal to 150 percent of the dollar amount which would be in effect under such clause for 2024 for eligible participants not described in the parenthetical in such clause, or

(ii) in the case of clause (ii) of subparagraph (B), the greater of—

(I) $5,000, or

(II) an amount equal to equal to [3] 150 percent of the dollar amount which would be in effect under such clause for 2025 for eligible participants not described in the parenthetical in such clause.

That amount defined in 414(v)(2)(E)(i) is now fixed to $11,250. It will never change. This amount will now be adjusted, based on cost of living adjustment rules described in the IRC Sec. 414(v)(2)(C), anchoring on the calendar quarter starting July 1st, 2024 as the basis:

In the case of a year beginning after December 31, 2025, the Secretary shall adjust annually the adjusted dollar amounts applicable under clauses (i) and (ii) of subparagraph (E) for increases in the cost-of-living at the same time and in the same manner as adjustments under the preceding sentence; except that the base period taken into account shall be the calendar quarter beginning July 1, 2024.

The cost of living adjustment must be in increments of $500, so it may be that it wasn't enough this year to move the needle. The regular catch up contribution limit remained $7500 in 2024 and 2025, and only moved by $500 in 2026.

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  • Well, it will never change until and unless the law changes. Whether, when, how much and in which direction are looking a lot less predictable right now. Commented yesterday
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    Of course everything we write here assumes current law, unless we explicitly speculate otherwise. Commented yesterday
  • Yep. Sorry about the quibble. I'm just feeling less stable than I'd prefer. Commented yesterday
  • Hmm... So your theory is that: 1) The calculation that resulted in $7500 was really $7500 + $X, where $X was some amount small enough that the rounding algorithm they use rounds it off to $7500, but the underlying number is preserved for future year calculations and 2) $11,250 was a fixed number, not (7500 + X) * 1.5, so it lacked the $X component, and 3) Even though limits are rounded to $500, it's the increment that is rounded to $500, so the bonus catch-up limit will be n * 500 + 250 from now on, and 4) A 2.7% inflation adjustment to $11,250, $11,553.75, doesn't round up to $11,750? Commented 19 hours ago
  • I have to assume if $11,553.75 doesn't round up to $11,750, then their rounding algorithm is "round down", which would allow for the $X above to be up to $499.99, and for a 2.7% increase to reach $8000, $X must have been at least $289.68 (so that $7789.68 * 1.027 >= $8000). Alternatively, they won't stick to $500 increments, just $500 multiples (with $11,250 being the oddball caused by the law), and the eventual next step would be $12K, and their rounding algorithm might be round to nearest. I'd try to confirm this myself, but it's frustratingly difficult to find the equations the IRS uses. Commented 19 hours ago
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If the total remains at $11,250 for 2026 and you want to contribute $12,000, add $750 to your employer plan as After Tax and covert to Roth in the plan, assuming the plan allows that and you aren’t already maxing out the $72,000 plus catch up.

A moderator deleted a response I submitted yesterday. Why?

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    This works even without being eligible for catch-up contributions, but relies pretty heavily on the plan allowing after-tax contributions and in-plan Roth conversions before you can do mega-backdoor Roth, which is useful if it applies, but my question was about why the rules catch-up contribution limit didn't change, not how to work around it (as it happens, my particular plan allows in-plan conversion, but not after-tax contributions, so megabackdoor Roth isn't an option for me). Commented 12 hours ago
  • This doesn't answer the question. The question was about the IRS process to determine the annual amounts and the law behind it. Commented 12 hours ago

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