Changes to 401(k) Contributions on the Horizon!

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Stellar Snippets

Currently, if you're 50 or older, you can make catch-up contributions to your 401(k).

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Eligible workers in 2023, after maxing out employee deferrals at $22,500, could save an extra $7,500.

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Starting in 2024, catch-up contributions for higher earners will be limited to after-tax Roth accounts. No upfront tax break, but funds grow levy-free.

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Individuals earning over $145,000 from a single employer in 2023 will experience the 2024 change. 

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Certified financial planner Jim Guarino advises higher earners to fund pre-tax catch-up contributions in 2023, providing a bigger tax break.

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Some financial experts suggest the benefit of setting up separate pre-tax and after-tax money in different IRAs to get more control in retirement.

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According to CFP Dan Galli, the catch-up contribution change is “not necessarily a bad thing" because "there’s some diversification from a tax point of view.”

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With limited time to update retirement plans, many companies are seeking more time from Congress for implementation.

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Compare your goals and expected income tax brackets in retirement before deciding on pretax or Roth 401(k) contributions. Diversification is key!

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