New Opportunities to Make 401(k) and IRA Catch-Up Contributions

USNews ^ | 17 Feb 2023 | Rachel Hartman

[EVO X]

The SECURE 2.0 Act has provisions that will impact how high earners can save for retirement. Beginning in 2024, if you earn more than $145,000 each year and are age 50 or older, your catch-up contributions must be made as after-tax Roth contributions.

[EVO X]

Anybody still working might want to look into recent changes to workplace retirement plan contribution limits.

[Hazwaste]

They just can’t stop messing with our retirement savings can they?

[EVO X]

I am retired but totally missed this. There are some pluses and minuses with the changes..

[DIRTYSECRET]

The rats want to expand the Supreme Court. What does it have to do with your nest egg?

Think about it.

[dfwgator]

Motherf_____s!

[SamAdams76]

They are doing this to screw over older folks by getting their taxes up front.

Roth IRAs can be great but typically you want to take them out earlier in your life, as the real benefit in them is having your investments grow tax free over a number of years.

[EVO X]

Ditto

[Tell It Right]

One other new thing is that Roth 401K contributions with employer matching can now have the employer match also go to Roth 401K. (repeat for Roth 403B's and Roth 457's). If you choose to do that, the employer's match will count as taxable income at the point they do their match (i.e. more taxes paid in your paycheck). But that money grows tax free because it's in the Roth 401K not the tax-deferred 401K.

This is a new option, not mandatory. So to implement this your employer has to choose to make it available, then the worker has to choose it for himself.

[dfwgator]

The rats want to expand the Supreme Court. What does it have to do with your nest egg?

"You may not use that word. It's off limits to you! Only those in this house who understand nest egg may use it! And don't use any part of it, either. Don't use 'nest.' Don't use 'egg.' You're out in the forest you can point: 'The bird lives in a round stick.' And, and, and you have things over easy with toast!""

[MachIV]

I’m 56. I doubt I will ever be able to fully retire and anything I inherit is at a fair risk of being lost in the money pit called a Nursing Home. It is what it is.

I’m just thankful everything is paid for and I have zero debt.

[Red Badger]

Define “High Earners”.................

[dfwgator]

Define “High Earners”.................

Anyone not on welfare.

[Red Badger]

😉🤦‍♂️😁....................

[pierrem15]

They are doing this to screw over older folks by getting their taxes up front.

Yup, might as well just use a regular savings or investment account with more flexibility since you'll be dead before any significant earnings can be withdrawn tax-free.

[Tell It Right]

Define “High Earners”.................

In this context it's probably referring to people who make too high of income to contribute to Roth IRA's ($153K for filing single, $228K for married -- as per https://investor.vanguard.com/investor-resources-education/iras/roth-ira-income-limits#modal-magi). Roth 401K's (and Roth 403B's and Roth 457's) have no income limits.

[E Pluribus Bellum]

You are correct

[EVO X]

I actually used the catch up provision when I hit 50 or so. I wouldn’t fall under the new rules because I didn’t make enough to meet the cutoff. That said $150K is chicken feed in many big cities...

[grey_whiskers]

From another source:

One last point is that Congress mistakenly deleted a part of the tax code when drafting SECURE 2.0. The result is that the way the code now reads is that no employees (high-paid or not) will be able to make any catch-up contributions (pre-tax or Roth) starting in 2024. Hopefully, either Congress will fix this mistake or the IRS will turn a blind eye to it.

[Tell It Right]

The catch-up provisions don't apply to us anyway, with my wife retired and me quasi-retired even though we're in our 50's. We paid off all debts except the house (very low interest rate, so instead of paying that down I invested more) and invested a lot in Roth accounts and tax-deferred accounts with the understanding that part of that money might be used for one of our kid's college (nursing school), which is happening now. In other words, for our long term financial planning our 50's is the phase of slow withdrawals, not still making contributions. Then when I fully retire in my late 50's we'll do the 4% annual withdrawals (or 1/3 of 1% monthly).

And yes, part of the reason we're able to do that is we don't live in a big city where $150K is chicken feed. We're in a fairly rural suburb in Sweet Home Alabama.

[TexasGator]

“Yup, might as well just use a regular savings or investment account with more flexibility since you’ll be dead before any significant earnings can be withdrawn tax-free.”

I have been drawing 7-10% out of my IRA for 12 years and it has still doubled in value. Wish I had transferred it to a Roth!