Earlier this year, high earners wanting to make catch-up contributions in their workforce retirement plans have to do so in their Roth IRA accounts – which means they’ll be losing the near-term tax advantage or writing them off.
This change, which was approved in the SECURE 2.0 Act of 2022, started Jan. 1. It isn’t expected to make a big change in how much high earners can save but it might shift thinking about Roth IRA accounts.
These new rules apply to workers over the age of 50 who earned $150,000 or more in 2025.
These high earners might consider making more Roth IRA contributions or convert other pre-tax accounts to Roth – but they are expected to keep making catch-up contributions because they are lagging in retirement funds and need to save more.
So, the change is unlikely to have much impact.
Under the current rules, those 50 and older can save an additional $8000 more in their retirement accounts through catch-up contributions – this is on top of the $24,500 limit for regular contributions.
And if workers are 60-63, they can save an additional $11,250 a year.
Experts say putting more retirement funds in a Roth IRA may actually improve financial security over the long-term because it offers more flexibility upon withdrawal.
This is because you pay more up front on your contributions, but you have tax-free growth AND tax-free withdrawals.
Educating workers about these changes and benefits will be a challenge for plan sponsors in the coming months. While this is one path, there are other ways to save for retirement as well.
Do you still have questions about retirement planning options? Follow us on LinkedIn and Facebook! If you have other questions about retirement plan loans, email us or call 937.308.0758.
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