Currently, “catch-up contributions” allow savers 50 and older to funnel an extra $7,500 into 401(k) plans and other retirement plans beyond the $22,500 employee deferral limit for 2023.
A change enacted via Secure 2.0 would have eliminated the upfront tax break on catch-up contributions
for higher earners by only allowing these deposits in after-tax Roth accounts, starting in 2024.
But the IRS on Friday announced a two-year delay for the change, meaning savers can still make pretax catch-up contributions through the end of 2025, regardless of income. More from Life Changes:
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Delay is ‘a very good thing’ for retirement plans
The delay is “a very good thing” for retirement plan administrators, said Dan Galli, a Norwell, Massachusetts-based certified financial planner and owner of Daniel J. Galli & Associates.
“There’s no way to do this right without a couple of years of preparation,” he added.
There’s no way to do this right without a couple of years of preparation.
Owner of Daniel J. Galli & Associates
‘Leverage the lower tax brackets’
While higher earners now have an extra two years for pretax catch-up 401(k) contributions, some may still consider after-tax deposits with impending income tax law changes, Galli said.
“This really coincides well with the changing tax brackets coming in 2026,” he said. Several provisions from the Tax Cuts and Jobs Act, including lower individual tax rates, will sunset after 2025 without intervention from Congress.