Millions of high-earning Americans are slated to lose a popular tax deduction starting next year. The change, which was part of a set of new rules Congress passed in December, will require high earners to make catch-up contributions to their 401(k) accounts in after-tax Roth accounts, rather than in pretax accounts.
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This change means that many high earners will pay taxes on their catch-up contributions up front, rather than deducting them from their taxable income. This could mean a significant increase in taxes for some high earners.SourceMoneyGuru-https://www.mgkx.com/4942.html
However, there are some potential benefits to making catch-up contributions to a Roth account. For one, money in a Roth account grows tax-free, so there is no tax liability when the money is withdrawn in retirement. Additionally, Roth contributions can be withdrawn tax-free at any time, for any reason.SourceMoneyGuru-https://www.mgkx.com/4942.html
Overall, the change to the 401(k) catch-up contribution rules is a complex one with both potential benefits and drawbacks. High earners who are affected by the change should carefully consider their options before making any decisions about how to contribute to their 401(k) accounts.SourceMoneyGuru-https://www.mgkx.com/4942.html
Here are some key things to keep in mind:SourceMoneyGuru-https://www.mgkx.com/4942.html
- The change to the 401(k) catch-up contribution rules will only affect high earners, those who earn more than $145,000 in 2023.
- High earners who make catch-up contributions to their 401(k) accounts will have to do so in after-tax Roth accounts, rather than in pretax accounts.
- Money in a Roth account grows tax-free, so there is no tax liability when the money is withdrawn in retirement.
- Roth contributions can be withdrawn tax-free at any time, for any reason.
If you are a high earner who is affected by the change to the 401(k) catch-up contribution rules, here are some things you can do:SourceMoneyGuru-https://www.mgkx.com/4942.html
- Consider making catch-up contributions to a Roth IRA instead of a 401(k).
- Talk to your financial advisor about the best way to save for retirement given your individual circumstances.
The change to the 401(k) catch-up contribution rules is a complex one, but it is important to understand the implications for your retirement savings. By carefully considering your options, you can make the best decision for your financial future.SourceMoneyGuru-https://www.mgkx.com/4942.html SourceMoneyGuru-https://www.mgkx.com/4942.html
