SECURE 2.0 Act: How Retirement Plans Are Impacted
Third in a series of articles addressing key components of the SECURE 2.0 Act, which became law on Dec. 29, 2022
By Christopher Wolff
The SECURE 2.0 Act includes major retirement plan changes designed to strengthen the financial readiness of Americans to retire. The changes resulting from the SECURE 2.0 Act will be phased in, with some beginning in 2023 and most becoming effective in 2024 and beyond.
This article focuses on the changes to the size of catch-up contributions for older workers with retirement plans.
Retirement plans are one of the most popular vehicles for U.S. savers. According to the Bureau of Labor Statistics, in 2021, 68% of Americans working in the private sector and 92% of workers in state and local government had access to employer retirement benefits. The share of workers with access who chose to participate in these plans was 75% for private industry and 89% for state and local government workers.
A worker’s annual contribution to a retirement plan is capped. Workers over the age of 50, however, can contribute an additional elective amount to allow those who didn’t save enough when they were younger to “catch up.” Under SECURE 2.0 Act provisions, catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
401(k) and 403(b) Plan Changes. In 2023, the contribution limit for 401(k) and 403(b) plans is $22,500. Workers aged 50 and over can contribute an additional $7,500, for a total of $30,000.
SECURE 2.0 provides additional savings opportunities starting in 2025 for savers between the ages of 60 and 63. Specifically, the catch-up contribution limit will increase to the greater of $10,000, or 50% more than the regular catch-up contribution amount for 2024. One caveat: Savers whose wages for the previous calendar year exceeded $145,000 must make their catch-up contributions to a Roth account in after-tax dollars.
IRA Account Holders. Similar to 401(k) and 403(b) savers, IRA and Roth IRA savers over the age of 50 have been able to make catch-up contributions. Starting in 2002, the catch-up amount was $500. In 2006, the amount increased to $1,000, where it has stayed for 17 years. Beginning in 2024, the catch-up contribution will adjust for inflation automatically. Adjustments will be made in $100 increments.
For individuals with high income, putting more into tax-deferred savings is a great way to reduce taxable income and bolster retirement accounts. Work with your Country Club Wealth Advisor to better understand the role your retirement savings play in helping you achieve your goals.
To read additional articles in our SECURE 2.0 Act series, please visit the Country Club Bank’s Knowledge Center.
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