For 2023, people 50 and older are allowed to put an extra $7,500 into their accounts, for a total of $30,000. Instead, they must pay taxes on that money and then contribute it to a Roth account, which returns growth untaxed.Ĭontribution limits will not change since individuals will still contribute this money to an employer-sponsored plan. Only people who earned $145,000 or more in wages in the prior year at their company will be able to fully deduct their contributions to a 401(k) account up to a standard annual limit but can’t deduct income used for catch-up contributions. “The biggest financial institutions take a long time to build infrastructure to incorporate laws, and here, they don’t even know what the rules are.” Who is affected by the catch-up contribution change? “There’s no way this will happen in 2024,” said Ed Slott, a retirement adviser. Issues range from legislative errors, to operational challenges, to questions about whether the government can tell workers how to save for retirement - obstacles that might make it impossible for the law to take effect at all. However, the change, set to start in 2024, is running into a myriad of problems that could prevent it from happening on time. Instead, they’ll be able to withdraw tax-free during retirement. That means those employees wouldn’t be able to take a tax deduction for that contribution, which is up to an extra $7,5. Secure Act 2.0, passed last December, says any employee at least 50 years old whose wages exceeded $145,000 the prior calendar year and elects to make a so-called catch-up, or additional, contribution to their 401(k) must do so on a Roth basis, or with after-tax money. Pay taxes now or later is often a consideration when people decide how to save for retirement, but Congress decided the only option for some older Americans should be now for certain retirement accounts.
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