Posted on 07/17/2023 12:51:20 PM PDT by DFG
Changes to a popular 401(K) tax deduction are set to hit millions of high-earning Americans from next year.
Workers over the aged of 50 are entitled to make catch-up contributions to their 401(K)s worth up to $7,500 this year. The annual cap on all contributions is $30,000.
But from 2024, those earning over $145,000 will no longer be able to put these catch-up payments into a traditional 401(K).
Instead, the money will be only funneled into a Roth IRA account, according to new rules passed through Congress in December.
The main difference between a Roth account and a 401(K) pot is that the former is taxed upfront - but can be withdrawn for free in retirement.
With a 401(K), workers are not taxed on their contributions until they withdraw it.
This option is often preferable because retirees tend to be in a lower tax band in retirement meaning they pay a smaller levy - though this varies depending on incomes.
For example, if a worker was in a 35 percent tax bracket, they would be taxed $2,625 on a $7,500 catch-up payment.
But if they fell into a 22 percent bracket in retirement, the levy would also drop to $1,650.
Experts say the change will have a major impact on America's retirement planning. Figures from financial planning firm Vanguard show 16 percent of eligible workers made catch-up contributions last year.
(Excerpt) Read more at dailymail.co.uk ...
The other main difference is that while the Roth is taxed up front - it can be taxed on the back end if Congress decides to do that.
Stroke of the pen, law of the land, and all that.
once he cracks the door it won’t be long before it opens fully and 401k will become a major tax for the progressives to spend.
.
Why doesn’t our Communist Medea tell us things like this???
Roth is generally the better option for younger workers, traditional for those closer to retirement.
Prog Plan: “If you have enough money to fund a 401K, you are a wealthy, privileged white person and that money you would have invested should be confiscated to fund reparations payments to the more deserving, underserved, oppressed classes.”
You forget the “pretty cool!” part. BJ Bill would be upset with you. ;-(
Rapin’ Bill and The Forehead.
But Roth IRA has earning limits, making some ineligible to be able to contribute to such an account.
Biden also screwed with leaving your house to your kids... they don’t get the ‘stepped up’ benefit anymore. Biden hates the working and middle classes.
You didn’t build that.
“..the more deserving, underserved, oppressed classes...”
Hey, that’s me, a very old geezer of Scotch-Irish heritage (like my scotch straight up) whose IRA and savings is dwindling.
Are you sure the “basis step-up” is gone? It’s been proposed many times, but I was not aware they eliminated it.
This is beyond wicked. Just when people have the money to contribute more they get kneecapped by the devouring tax-and-spend monsters in Washington.
What they will do is tax any gains or limit non taxable gains. Count on it!
I haven’t heard anything about the 121 exclusion going away. There has been talk of it for years but I have yet to see it seriously considered, much less implemented.
Does the Big Guy get his 10% cut?
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