Currently, if you're 50 or older, you can make catch-up contributions to your 401(k).
Eligible workers in 2023, after maxing out employee deferrals at $22,500, could save an extra $7,500.
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.
Individuals earning over $145,000 from a single employer in 2023 will experience the 2024 change.
Certified financial planner Jim Guarino advises higher earners to fund pre-tax catch-up contributions in 2023, providing a bigger tax break.
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.
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.”
With limited time to update retirement plans, many companies are seeking more time from Congress for implementation.
Compare your goals and expected income tax brackets in retirement before deciding on pretax or Roth 401(k) contributions. Diversification is key!