News & Insights
IRS Pushes Back Changes to 401(k) Catch-Up Contributions
September 8th, 2023
By Michael Nordmann |
High Net Worth |
The Internal Revenue Service (IRS) announced in late August, 2023, it will push back changes to 401(k) catch-up contributions that were scheduled to take effect in 2024.
Under the new rule, higher earners who make catch-up contributions to their 401(k) plans would have been required to make those contributions on a Roth basis, rather than a pre-tax basis.
However, the IRS has now delayed the implementation of this rule until 2026.
Why did the IRS decide to delay pending 401(k) catch-up contributions changes?
The decision to delay the rule was made in response to concerns from employers and plan providers about the time and cost involved in making the necessary changes. This delay would also give taxpayers more time to adjust their retirement savings plans.
Where did 401(k) catch-up contribution changes initiate from?
The modification was a component of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This legislation introduced several amendments to retirement savings regulations, one being that it raised the age at which mandatory minimum distributions (RMDs) need to commence from 70½ to 72.
Beginning in 2023, SECURE Act 2.0 once again raised this age from 72 to 73. For those who reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025 for 2024.
What does the delay of 401(k) catch-up contribution rules mean for you?
The delay of the Roth catch-up contribution rule’s implementation is good news for individuals with higher incomes who were concerned about the extra taxes they would have had to pay.
It’s crucial to remember the rule will become active in 2026, so eligible taxpayers should begin making preparations accordingly, no matter how much it is delayed.
2023 401(k) Contribution Limits
Below are the 2023 401(k) contribution limits:
- Employee contribution limit: $22,500
- Catch-up contribution limit for those 50 or older: $7,500
- Total contribution limit (employee + employer): $66,000
Other Things to Keep in Mind
- The 401(k) contribution limits are subject to inflation adjustments. The limits for 2024 and beyond will be announced by the IRS in the fall of 2023.
- The 401(k) contribution limits are per person. If you and your spouse both have 401(k) plans, you can each contribute the maximum amount.
- Any employer matching contributions do not count towards the 401(k) contribution limits.
Learn more about the IRS’s catch-up contribution changes and provisions here.
What Maner Can Do To Help
At Maner Wealth, we understand the responsibilities around creating and managing a 401(k). Our experts can help your organization design a plan that meets your needs. And we’ll help you ensure it meets federal compliance requirements, so you can focus on investing in your financial futures.
If you are not sure whether you are eligible to make 401(k) contributions, please reach out to Michael Nordmann, CFP, Principal, Director, Chief Wealth Officer or our Wealth Management Team.