Secure Act 2.0 Mandates Roth Catch-up Contributions in 2024

Congress has passed the SECURE Act 2.0. Among the many retirement plan changes are new catch-up contribution requirements. Alex Koury from Hosler Wealth Management joins Bruce today to explain.

As you may know, employees aged 50 and over can make "catch-up" contributions to their plans to save more for retirement. Until 2023, these additional contributions could go into the tax-deferred side of a 401(k) plan and be taken as a tax deduction.

However, beginning in 2024, highly compensated individuals' catch-up contributions may only go into Roth or after-tax plans. Now, the benefit to the retiree is that money will grow tax-free; the taxes are paid on the way in, not the way out. But here's the caveat, this can result in a significant swing in your 2024 taxes. For example, a $7,500 catch-up contribution will now be taxed instead of a tax deduction. That's a $15,000 swing. At 23% (federal + state), that could increase your tax bill by $3,450!

We believe that despite this "short-term pain," there is "long-term gain." With the Tax Cuts and Jobs Act set to expire in 2026, the likelihood of taxes increasing is high. Having already paid the taxes on this money could save you in the long run. We don't want to see you with a nasty surprise on next year's taxes!

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/

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