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SECURE 2.0 Enhances Catch-Up Contribution Opportunities for Retirement Savers

January 24, 2023

Attention those 50 or older…SECURE 2.0 changes the rules for catch-up contributions to your Individual and Roth retirement accounts. Here’s what you should know.

As people near retirement age, they may be surprised to discover that their current savings won’t be enough to fund their preferred standard of living in their Golden Years. If this happens to you, don’t panic. The tax code provides opportunities for older people to catch up — and those options were recently expanded under the Setting Every Community Up for Retirement Enhancement 2.0 Act. This new law (commonly referred to as SECURE 2.0) was part of the omnibus spending package that was signed into law on December 29, 2022.

IRA Catch-Up Contributions

If you’re 50 or older, you can make additional “catch-up” contributions of up to $1,000 annually to your traditional IRA or Roth IRA. Starting in 2024, under SECURE 2.0, these contributions will be indexed annually for inflation.

Note: Catch-up contributions are over-and-above the standard contribution maximum to traditional and Roth IRAs of $6,000 for 2022 and $6,500 for 2023.

Contributions to traditional IRAs may be tax deductible — unless your income is too high to qualify. The modified adjusted gross income (MAGI) phase-out ranges for traditional IRAs for 2022 and 2023 are:

Traditional IRA MAGI limits

2022

2023

Married filing jointly; a spouse who participates in an employer-sponsored plan

$109,000- $129,000

$116,000- $136,000

Married filing jointly; a spouse who does not participate in an employer-sponsored plan

$204,000- $214,000

$218,000- $228,000

Single or head of household

$68,000- $78,000

$73,000- $83,000

However, higher-income individuals can still make nondeductible contributions to a traditional IRA.

Likewise, contributions to Roth IRAs don’t generate any upfront tax savings, but you can take federal-income-tax-free withdrawals after age 59 1/2 (if you’ve had at least one Roth account open for over five years). However, there are income restrictions on Roth contributions, too. The modified adjusted gross income (MAGI) phase-out ranges for Roth IRAs for 2022 and 2023 are:

Roth IRA MAGI limits

2022

2023

Married filing jointly

$204,000-$214,000

$218,000-$228,000

Single or head of household

$129,000- $144,000

$138,000- $153,000

Tax Planning Tip: If you were 50 or older as of December 31, 2022, you can still make IRA catch-up contributions for the 2022 tax year. You have until Tax Day (April 18, 2023) to make contributions to traditional and Roth IRAs.

Catch-up Contributions to Employer Plans

Some employer-sponsored retirement plans allows extra salary reduction contributions for older participants. If your employer’s plan allows catch-up contributions and you’ll be age 50 or older at year end, you can contribute up to $7,500 for 2023 to your 401(k), 403(b) or 457 account. The catch-up contribution limit for SIMPLE plans is $3,500 for 2023.

Note: Catch-up contributions are over-and-above the standard salary reduction contribution maximum of $22,500 for 2023 ($15,500 for SIMPLE plans for 2023).

Starting in 2025, under SECURE 2.0, the catch-up contribution limit for employees ages 60 to 63 will increase to the greater of:

  • $10,000 ($5,000 for SIMPLE plans), or
  • 50% more than the regular catch-up amount in 2024 (2025 for SIMPLE plans).

These amounts will be indexed annual for inflation after 2025.

Salary reduction contributions are subtracted from your taxable wages, so you effectively get a federal income tax deduction. You’ll generally get a state income tax deduction, if your state has a personal income tax.

Warning: Under SECURE 2.0, for tax years beginning after 2023, catch-up contributions to employer-sponsored plans for highly compensated employees will be subject to mandatory Roth tax treatment. For 2024, the prior-year wage limit is $145,000. Thereafter, this amount will be indexed annually for inflation. This adverse change doesn’t apply to simplified employee pensions or SIMPLE IRAs. The IRS is expected to issue additional guidance on this provision of the new law.

Additional Contributions Can Add Up

If you make catch-up contributions from age 50 until you retire, the extra savings will soon add up, especially if the market grows significantly during those years. To maximize your nest egg, you can make catch-up contributions to both your IRAs and employer-provided retirement plans in the same year. Contact us to help you understand the new-and-improved rules and decide what’s right for your situation.

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