Big Change Coming for Higher Earners’ Retirement Savings

Don’t miss

• SECURE 2.0 Act disrupts “catch-up” contributions for older, higher earners
• Starting in 2026, catch-up contributions must be designated as after-tax Roth contributions
• Traditional 401(k) and Roth IRA accounts have different tax advantages
• Nearly 70% of private-sector workers have access to employer-sponsored retirement plans
• 401(k)s are a sure and steady wealth-builder, while Roths offer tax-free withdrawals at age 59.5

The ‘Roth-ification’ of Retirement Savings

SECURE 2.0 Act fundamentally alters tax advantages for older workers using catch-up contributions

Reduced Tax Savings for High Earners

Shift to Roth accounts removes upfront tax break for catch-up funds

Affected Take-Home Pay

Paychecks shrink for higher, older earners who maintain catch-up contributions

Retiring in the Same Tax Bracket

Roth’s tax-free growth becomes attractive for high earners in the same or higher tax bracket in retirement

Taxes Now, Rewards Later

Higher taxes on upfront contributions offset by tax-free growth and withdrawals in retirement

Withdrawing Contributions Without Penalty

Roth contributions can be withdrawn at any age without taxes or penalties, but withdrawing earnings before age 59.5 triggers a penalty

Late Change

SECURE 2.0 Act’s catch-up contribution changes originally meant for 2024, but transition period announced for implementation

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.