IRS sets new commencement date for obligatory Roth IRA Catch-Up Contributions
SECURE 2.0 Act Introduces Changes to Retirement Savings for High Earners
The SECURE 2.0 Act, passed a few years ago, is set to bring significant changes to retirement savings strategies for high earners in the United States. Starting from 2024, individuals earning $145,000 or more in the previous year will be required to make catch-up contributions to their employer-sponsored 401(k) account on a Roth IRA basis.
Under this new rule, known as the Roth catch-up provision, workers aged 50 or older can make additional contributions above the standard catch-up limits. For instance, using the 2025 contribution limits as a reference, you can contribute up to $23,000 to your 401(k) plus an additional $7,500 catch-up contribution if you're 50 or older, totaling $30,500. However, it's important to note that these catch-up contributions will be made with after-tax dollars instead of pre-tax, but with tax-free withdrawals in retirement.
The IRS has confirmed the "super catch-up" provision under the SECURE 2.0 Act, effective beginning with the current 2025 tax year. Workers aged 60 to 63 can contribute significantly more above the standard catch-up limits - up to $11,250 in 2025.
The Roth catch-up rule technically begins as of January 1, 2026, but employers have an extended grace period to ensure their plans comply with the new rules until 2027. If a catch-up contribution is mistakenly made as a pre-tax contribution instead of a Roth, plans have until the end of the following plan year to correct it.
Employers and plan sponsors will likely prepare for the change by updating their systems and providing education to help participants understand the new rules. It's crucial for high earners to consult a tax or financial professional to determine how these and other tax changes might impact their retirement savings strategy.
The final regulations state that full applicability of the Roth catch-up rule will generally take effect for most plans beginning after December 31, 2026. The IRS has also clarified other questions about the Roth catch-up contributions, such as the correction period for mistaken pre-tax contributions.
Starting in 2026, new U.S. pension regulations will impose increased taxes on high earners making over $145,000 annually, specifically reducing certain pension contribution limits and increasing tax rates on these income groups to address funding shortfalls and enhance system sustainability.
It's worth noting that the SECURE 2.0 Roth catch-up contribution rule won't apply to taxpayers making $144,999 or less in a tax year. Over 200 entities, including Fortune 500 companies, firms, and public employers, had initially asked Congress for a two-year delay to the Roth catch-up rule, but the final regulations have not accommodated this request.
In summary, the SECURE 2.0 Act introduces changes to retirement savings for high earners, with the Roth catch-up provision requiring these individuals to make catch-up contributions on a Roth IRA basis starting from 2024. These changes are expected to impact retirement savings strategies, and it's recommended that high earners consult a tax or financial professional for advice.
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