Ann (Anne) Tergesen
speaker
47 appearances
1 recordings
1 series
first heard Jul 2023
last heard Jul 2023
Ann (Anne) Tergesen’s voice in public audio — every appearance, attributed to the second.
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It can't go into a traditional 401k.
So a catch-up contribution is an extra contribution that people 50 and older are allowed to make to their 401ks.
So the way it works is this year, the IRS has set a limit of $22,500 that anybody can contribute to a 401k.
And for an employee, that's the maximum that you can contribute.
But if you're 50 or older, you can actually contribute an extra $7,500.
So somebody who's 50 or older can put in a total of $30,000 this year into their 401k, thanks to these catch-up contributions.
No, the change in the rules affects people 50 and older who are making catch-up contributions to their 401k.
What the new rule says is that if you are 50 and older and making catch-up contributions and you earn more than $145,000 in the prior year, then your catch-up contribution has to go into a Roth 401k.
It can't go into a traditional 401k.
Okay, so the way that the Roth 401k and the traditional 401k differ is all about tax treatment of your contributions and tax treatment of the money that you withdraw in retirement.
For example, with a traditional 401k, you get a tax benefit up front.
The money that you put in is not taxed.
in this current year that you contribute it.
Instead, with a traditional 401 , when you take the money out in retirement, you pay income tax then.
A Roth 401 kind of reverses that, and the money that you put into a Roth 401 is taxed in the current year when you contribute it.
But in retirement, the money can come out tax-free.
So the reason why people who are making catch-up contributions, that's people who are 50 and older, who have incomes that are above $145,000, they are being kind of forced into putting those catch-ups into a Roth is because that generates income tax revenue right now.
And Congress needed a way to pay for a retirement bill that passed last December, and that was one of the primary ways that they used to pay for it.
No.
The only people who are going to be paying more in taxes than they would have otherwise are people who are 50 and older and are making catch-up contributions and earn more than $145,000 a year.
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