Secure Act 2.0 Part 3Investing Retirement Funding Insights
By Ben Dolan
Much of the Secure Act 2.0 provides those saving for retirement, and those sponsoring retirement plans, with greater flexibility regarding saving/contributing and the tax impact of doing so (e.g. creation of Roth SIMPLE Accounts). Not so with changes to Catch-Up Contributions for High Wage Earners.
Currently, if you’re age 50 or older, you can make catch-up contributions to your retirement accounts. For example, in 2023, those under 50 years old can contribute $22,500 to their 401(k), while those over 50 can contribute $30,000, given the allowable catch-up contribution of $7,500. Depending on the employee selection, catch-up contributions are either pre-tax or Roth.
Starting in 2024, those who are eligible for catch-up contributions in 401(k), 403(b) and 457(b) plans with wages above $145,000 for the preceding calendar year must allocate their catch-up contributions to the Roth portion of their plan. Note, this provision does not apply to catch-up contributions to IRAs and SIMPLE IRAs (which allow for $1,000 and $3,500 in catch-up contributions, respectively, in 2023). Note that the rule applies to those with wages over $145,000 but would not necessarily apply to business owners with income above $145,000 (would apply only if their wages are above $145,000).
The ability to make pre-tax catch-up contributions may arise for those changing jobs even if their wages exceeded $145,000 in the preceding year. As written, the legislation asks the employee if they earned more than $145,000 in the previous year from the employer sponsoring the plan in which they are currently enrolled. Since a job change was made, the answer would be no, and the employee could make catch-up contributions pre-tax until they answer yes in subsequent years.
More to come soon.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions. Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal. Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements. Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.