Posted on 08/30/2023 11:04:22 AM PDT by Red Badger
The Internal Revenue Service (IRS) is changing limits on Americans’ catch-up contributions to their retirement accounts that will be in effect through 2025.
The IRS announced Friday that it’s putting an administrative transition period in place until 2026 to extend the new requirement that catch-up contributions made by higher-income individuals participating in a 401(k) or similar retirement plan be treated as after-tax Roth contributions.
The change delays the implementation of a rule that Congress approved last year as part of the Secure 2.0 Act.
Americans aged 50 and older have previously been able to make catch-up contributions to put extra cash into their retirement accounts above the contribution limit. For example, eligible savers can deposit a catch-up contribution of up to $7,500 into their 401(k) plans or other retirement accounts above the $22,500 cap in 2023.
Under the Secure 2.0 Act, which became law as part of a year-end appropriations package enacted by Congress in December 2022, the new catch-up contribution rule would require higher-income earners put their catch-up contributions in after-tax accounts subject to Roth rules.
The policy applies to individuals who earned more than $145,000 from a single employer in the prior year and to catch-up deposits into 401(k), 403(b) or 457(b) retirement plans.
In effect, this means that higher-income earners wouldn’t receive the same tax break they’ve previously enjoyed once the Secure 2.0 changes are implemented because they wouldn’t be permitted to make pretax catch-up contributions, which reduce the size of the saver’s income subject to tax.
Read the full story here:
https://www.foxbusiness.com/politics/irs-announces-changes-impacting-catch-up-contributions
Anybody doesn’t like it?
IRS: Keep complaining. We’re reloading.
Market needs more infusion.
GDP dropping fast.
So an administration agency which was a creation of congress gets to override the legislation created by congress?
Notice how the “high-income” restrictions keep creeping lower and lower. In a big city, a $145K salary is not a lot of money.
1) The IRS is making the law up on the fly like they're Congress. If the Secure 2.0 doesn't codify specifically that catch-up 401k contributions (as well as 403b and 457) must be treated like Roth then the IRS ain't got no business forcing them that way.
2) Because this impacts the 50+ aged workers, we're talking about people who are liable to be at the top of their careers. In other words, they're in the highest tax bracket they'll be in and it's the best time of their lives to put money into tax-deferred accounts (traditional 401K/403B/457/IRA) instead of Roth versions.
3) Fortunately for now the Trump tax cuts are still in place until the end of 2025. In other words, it's possible that for 2024 and 2025 you're in a lower tax bracket than you'd otherwise be in anyway. Thus, if making catch-up contributions you're already doing Roth anyway, at least if you're in a lower tax bracket thanks to the 2017 Tax Cuts and Jobs Act.
4) Unrelated, I haven't heard of anyone's HR/Benefits allowing a provision made possible by the Secure Act. It's optional to employers and, if they implement it, optional to employees. That is, when making Roth 401K/Roth 403B/Roth 457 contributions you can choose the employer match portion to also be treated as Roth. Until now, the employer match portion has to be treated like tax-deferred (in other words, on that portion of your 401K you'll have to one day pay taxes on it either at withdrawal or conversion to Roth). But if the employer allows it and you choose it, the employee match portion gets taxed as more taxable income, but it's put into the Roth 401K portion and grows tax free from then on. (Bonus points that when you leave work you can transfer it to a Roth IRA and it's treated like contributions into your Roth IRA, which have no age requirement to avoid penalty if withdrawing before age 59.5 -- as long as your Roth IRA is at least 5 years old.)
later
What he really wants to do is TAKE, confiscate, steal, the entire amount in excess of $xxxxx (to be determined) and give it to lazy slobs who vote democrat.
It’s only a matter of time until Roth accounts will lose their tax advantage. I foresee Congress and the IRS taxing them the same as traditional accounts. They can change the rules with a stroke of the pen.
It reduces the tax deduction, but the ROTH is much better for estate purposes so it’s a benefit to the saver. Also no required RMD’s. Sounds like the govmint just needs more revenue now with the lesser tax deductions = higher tax payments.
The saving grace is, for most young people, that's all they have for retirement - so there would be a big backlash if they did that.
Just a reminder that the Congress passes laws to “make the rich pay” more. And then in a short while the rules change to make sure the “less-than-rich” are paying more as well.
See the pattern?
They just redefine ‘rich’.
By the first Income Tax law in effect after the Constitutional Amendment was passed, I would be a ‘Super Rich’ man. The original tax rate was:
https://taxfoundation.org/data/all/federal/historical-income-tax-rates-brackets/
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