(PartiallyPolitics.com) – Americans are going to have until the end of 2025 to take advantage of contributions to their retirement accounts and benefit from the new Internal Revenue Service (IRS) changes to the limits.
On Friday the IRS announced an administrative transition period which will be in place until 2026 and will allow catch-up contributions made by higher-income individuals that have a 401(k) or other such plan to be treated in the same way as after-tax Roth contributions.
This transitionary period is going to lead to a delay in the implementation of the Secure 2.0 Act which was approved by Congress last year.
Those Americans who are over the age of 50 were previously allowed to make catch-up contributions to their retirement account which enabled them to go over the contribution limit. Still, the catch-up contribution also had certain limits with eligible savers depositing up to $7,500 in 2023 for accounts above the $22,500 cap.
The Secure 2.0 Act, which was included in the end-of-year appropriations package that was enacted in December 2022 by Congress, stated that new catch-up contributions would need to be made to an after-tax account for those in a higher-income bracket. The policy would affect all those who receive over $145,000 from a single employer. Previously those people were allowed to put their catch-up contributions into 401(k), 403(b) or 457(b) retirement plans.
As a result, those in a higher-income tax bracket will no longer be able to benefit from the same tax breaks that they were previously able to take advantage of with their pretax catch-up contributions.
Copyright 2023, PartiallyPolitics.com