Tag: retirement-planning

401(k) catch-up now become taxable

The main change to 401(k) catch-up contributions for 2026 is that high-income earners aged 50 or older will be required to make their catch-up contributions on a Roth (after-tax) basis. The standard and “super” catch-up contribution limits are also projected to increase due to inflation. 

Roth catch-up rule for high earners

Beginning January 1, 2026, employees who meet all of the following criteria must make any catch-up contributions to their 401(k) on a Roth basis: 

  • Age 50 or older during the year.
  • Contribute to a 401(k), 403(b), or governmental 457(b) plan.
  • Had FICA wages greater than $145,000 in the previous calendar year from the employer sponsoring the plan. 

Consequences of this rule:

  • Loss of upfront tax deduction: High-income earners will lose the ability to lower their current taxable income with pre-tax catch-up contributions.
  • Future tax-free withdrawals: In exchange, the catch-up contributions and their earnings will be tax-free in retirement.
  • Impact on plan availability: If an employer’s plan does not offer a Roth 401(k) option, these high earners will not be able to make any catch-up contributions at all. 

Projected 2026 catch-up contribution limits

The official 2026 limits have not yet been announced by the IRS, but experts project the amounts will rise from 2025 due to inflation. 

Eligibility 2025 Catch-up Contribution LimitProjected 2026 Catch-up Contribution Limit
Age 50–59, and 64+$7,500$8,000
Age 60–63 (super catch-up)$11,250Up to $12,000 (150% of the standard catch-up limit)

Other key details

  • Secure 2.0 Act: The Roth catch-up requirement for high earners is a provision of the SECURE 2.0 Act of 2022, which was originally set to take effect in 2024 but was delayed until 2026 to give employers more time to prepare.
  • Employer responsibility: Employers must track prior-year FICA wages to determine which employees are subject to the Roth catch-up requirement. Plans must also offer a Roth option to all employees if they wish to allow high earners to continue making catch-up contributions. 
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Navigating Inherited IRA Taxes

Inherited an IRA? Understanding the new tax laws is crucial to protect your wealth.

The SECURE Act has significantly changed the rules for inherited IRAs. No more stretching withdrawals over your lifetime! Now, you generally must withdraw the entire inherited IRA balance within 10 years of the original owner’s death. This can trigger a hefty tax bill.

Key Strategies to Consider:

  • Time Your Withdrawals: Spread out withdrawals to manage your tax bracket.
  • Roth Conversion: If eligible, convert some or all of the inherited IRA to a Roth IRA. This can be tax-efficient if you expect to be in a higher tax bracket in the future.
  • Beneficiary Designation: Carefully consider your beneficiaries and how you want the IRA to be distributed.
  • Consult a Tax Professional: Complexities arise, especially with inherited IRAs. Seek expert advice.

Remember: These are general guidelines. Your specific situation may require tailored advice.

Action Steps:

  • Schedule a meeting with a financial advisor.
  • Review your inherited IRA account details.
  • Understand the 10-year rule and its implications.
  • Explore Roth conversion possibilities.

By proactively addressing these issues, you can make informed decisions to minimize your tax burden and optimize your financial future.

#inheritedIRA #taxplanning #financialplanning #SECUREAct

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