The SECURE 2.0 Act, signed into law in December 2022, introduced several changes to retirement savings, including significant updates to Roth catch-up contributions. These changes impact high-income earners and aim to enhance retirement readiness for older workers. If you’re wondering how these new rules affect your retirement planning, TruTaxx Solutions is here to help.
What Are Catch-Up Contributions?
Catch-up contributions allow individuals aged 50 and older to contribute additional funds to their 401(k), 403(b), and other qualified retirement plans beyond the standard annual limits. This provision helps older workers boost their savings as they approach retirement.
For 2024, the standard contribution limit for a 401(k) is $23,000, but those aged 50+ can contribute an additional $7,500 as a catch-up contribution, bringing their total possible contribution to $30,500.
What’s Changing Under SECURE 2.0?
1. Mandatory Roth Catch-Up Contributions for High Earners
Starting in 2026 (delayed from the original 2024 implementation), employees earning $145,000 or more in the previous year must make their catch-up contributions on a Roth basis—meaning contributions will be made with after-tax dollars instead of pre-tax dollars.
- This change applies to 401(k), 403(b), and governmental 457(b) plans.
- The $145,000 income threshold will be adjusted annually for inflation.
- Employees earning below this threshold can continue making pre-tax catch-up contributions.
2. Higher Catch-Up Limits for Ages 60-63
Starting in 2025, individuals aged 60 to 63 will be allowed to make higher catch-up contributions—the greater of $10,000 or 150% of the regular catch-up limit.
- This enhanced limit will be indexed for inflation in future years.
- These additional contributions must be Roth if the participant meets the high-income threshold.
What This Means for You
If you earn $145,000+, your catch-up contributions will now be taxed upfront but will grow tax-free in a Roth account—potentially leading to tax-free withdrawals in retirement. This shift could impact your overall tax strategy, and you may need to adjust your retirement savings approach accordingly.
How TruTaxx Solutions Can Help
Navigating tax law changes can be complex, but you don’t have to do it alone. At TruTaxx Solutions, we specialize in tax planning and retirement strategies to ensure you’re making the most of your savings opportunities. Whether you need help maximizing your Roth contributions, managing taxable income, or adjusting your financial plan, our experts are here to guide you.
📞 Contact us today to schedule a consultation and secure your financial future!