IRS delays change for 401(k) catch-up contributions. Here’s what higher earners need to know

Chris Demarest |

Currently, “catch-up contributions” allow savers 50 and older to funnel an extra $7,500 into 401(k) plans and other retirement plans beyond the $22,500 employee deferral limit for 2023.

A change enacted via Secure 2.0 would have eliminated the upfront tax break on catch-up contributions for higher earners by only allowing these deposits in after-tax Roth accounts, starting in 2024.

But the IRS announced a two-year delay for this change on August 25th, meaning savers can still make pretax catch-up contributions through the end of 2025, regardless of income.

“The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement,” the IRS said in a statement

The Secure 2.0 change applies to employees making catch-up deposits to 401(k), 403(b), or 457(b) plans who earned more than $145,000 from a single company the prior year. 16% of eligible employees took advantage of catch-up contributions in 2022, according to a recent Vanguard report based on roughly 1,700 retirement plans.

Delay is 'a very good thing’ for retirement plans

About 200 organizations wrote a letter to Congress in July asking for more time to implement the 401(k) changes, and many are applauding the delay.

The delay is “a very good thing” for retirement plan administrators, said Dan Galli, a Norwell, Massachusetts-based certified financial planner and owner of Daniel J. Galli & Associates. “There’s no way to do this right without a couple of years of preparation,” he added.

“Without this additional compliance period, a vast number of plans and employers would not have been able to comply with the new requirement and likely would have had to suspend catch-up retirement contributions,” Diann Howland, vice president of legislative affairs for the American Benefits Council, said.

Leverage the lower tax brackets

While higher earners now have an extra two years for pretax catch-up 401(k) contributions, some may still consider after-tax deposits with impending income tax law changes, Galli said. 

“This really coincides well with the changing tax brackets coming in 2026,” he said. Several provisions from the Tax Cuts and Jobs Act, including lower individual tax rates, will sunset after 2025 without intervention from Congress.

While pre-tax 401(k) contributions provide an upfront tax break, after-tax Roth deposits allow funds to grow and be withdrawn in retirement tax-free. And with the potential tax changes in the upcoming years, some individuals may find it easier for them to pay taxes now. 



This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.


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