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The main difference between a Roth account and a 401(K) pot is that the former is taxed upfront - but can be withdrawn for free in retirement.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 ...
If you ever want to dream of retire ng before 59.5 an investment banker friend of mine says then don’t make your money off limits in one of these gimmicks.
Call you House Rep and Senators, pronto.
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