Sean Pyles

These taxes aren't just going into the abyss, at least not all the time.

It's going to help people with their benefits.

So it's nice to know.

All right, so I'm going to pivot to the new changes to catch-up contributions and why they've been made.

Back to the Secure 2.0 Act.

As we mentioned, this act made it so people who make more than $150,000 from the year before have to make after-tax contributions into a Roth beginning January 1st of this year, 2026.

Prior to this rule, there was no income cap for the catch-up contributions and the type that they were.

Well, a smaller paycheck is probably the most obvious one here.

There are some other benefits of this change, too, including tax-free withdrawals in retirement.

Also, Roths aren't subject to required minimum distributions of the original owner of the account, and you face that with something like a 401k.

So that's more money that you can leave to grow in the market or leave for your beneficiaries.

The new rule also potentially forces you to diversify your tax situation, which is a plus if you haven't done that so far.

Something else I'm thinking about here is how many people even make catch up contributions.

We know that a lot of folks aren't saving nearly enough for retirement.

So are people even maxing out their accounts enough to be able to make catch up contributions?

Okay, I'm going to talk about a lot of numbers, so maybe pull out a pen and paper or just get your brain ready for that.

So let's say Denise is 50 and has current retirement savings of $350,000 in a 401k.

The annual rate of return on her investments is, let's say, 7%, and she plans to retire at 65%.

In 2026, the standard 401k limit is $24,500, and the catch-up contribution for those 50 or older is $8,000, as we said before.

So Denise can contribute up to $32,500 per year.