IRS Delays SECURE Act 2.0 Mandatory Roth Catch-up Rule

The IRS has delayed the Secure Act 2.0 catch-up rule for mandatory roth 401k contributions for 2 years. If you’re over 50 and make more than $145,000 a year, your catch-up contributions to your 401k or 403b plan will have to be Roth (after tax dollars), but luckily not until 2026.

Catch-up contributions consist of an extended amount of $7,500 to 401k contributions on top of the annual limit which is $22,500. The Secure Act 2.0 has a mandatory provision for those people making more than $145,000 who make catch-up contributions to their 401k. So, if you are 50 or older, you’re allowed to contribute $22,500 plus $7,500. Most people in that income range like to do this on a pre-tax basis. So, the $30,000 that they put into their 401k gets deducted from taxable income. This becomes a great way to lower your taxable income on your tax return.

The Secure Act 2.0 catch-up rule states that the contribution of $7,500 can only be made on a Roth basis. So, that means you will need to make that contribution with after-tax dollars. Therefore, you can no longer shelter that $7,500 and take it off as a current year tax deduction. In 2 years, people will need to start paying taxes on those dollars, at whatever current marginal tax bracket they are in. These contributions now will need to go to the Roth side of your 401k.

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Missie Beach, CFP®, CDFA®
Senior Financial Advisor

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By Published On: September 1, 2023

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