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  • Writer's picturePeter Mu, CFP® ChFC®

SECURE 2.0 Act Increases Catch-up limit for ages 60 - 63, mixed bag for others

On December 23, 2022, Congress passed the Consolidated Appropriations Act, 2023, which contains the SECURE 2.0 Act of 2022 (the “Act”) and is anticipated to be signed into law by President Biden before December 30, 2022. The Act includes a number of provisions related to retirement plans that:

  • expand participant coverage;

  • help participants preserve income; and

  • simplify plan rules and provide administrative procedures.

One of the provisions increases age based catch-up limits to the greater of $10,000 or 50 percent more than the regular age 50 catch-up amount in 2025 (as indexed for inflation) for participants who have reached ages 60, 61, 62 and 63.

Current plans may permit $7,500 catch up contribution for persons over 50 in the 2023 tax year. The personal contribution limit also rises from $20,500 in 2022 to $22,500 in 2023. This is a huge benefit as it amounts to over 11% increase in deductible contributions and is a great benefit for those who seek maximum opportunity to defer current year income tax.

For persons age 60-63 in 2025, and if the limits remain the same, this means total contribution can be as high as $33,750.

Effective date: Calendar years beginning after December 31, 2024

Applicable plans: 401(k), 403(b), and governmental 457(b) but cannot be used in addition to 457(b) special catch-up

However at the same time another provision places a limit on the deductible amount for highly compensated employees including owners, partners, spouses, key and controlled employees.

Age 50+ Catch-up contributions made only as Roth contributions for certain highly paid employees

If a participant’s wages subject to FICA in the previous year paid by the employer sponsoring the plan were more than $145,000 (subject to annual cost of living adjustments in $5,000 increments), the participant may only contribute the Age 50+ Catch-up as a Roth contribution.

Roth contributions are not deductible against current year income. It does, however, offer tax-deferred growth and tax-free distribution in retirement. Other provisions in the Act also further eliminated RMD for Roth money and increased RMD age limit to 73 and 75.

Effective date: Tax years after December 31, 2023

Applicable plans: 401(k), 403(b) or governmental 457(b) plan

What does this mean to you? If you are an employer, a business owner who is responsible for the management of your company 401(k) it is time for a conversation with me to discuss best course of actions for your plan. The new law further complicates your fiduciary duty as sponsor of the plan and the benefits you must make available to your employees.

If you are an employee participating in your company's 401(k) plan review your contribution settings and your cash flow for this past year. Take the opportunity to become a world-class saver (15% gross) and even beyond.

Photo by Karolina Grabowska:

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