Navigating the Confusion: Understanding the Changes to Retirement Account Rules Under the SECURE 2.0 Act

The SECURE 2.0 Act has made significant changes to retirement account rules, causing confusion among older adults who need clarity on aspects such as required minimum distributions and catch-up contributions. Under the new rules, catch-up contributions for higher-income earners will eventually need to be made on a Roth basis, meaning after-tax money will be used. However, a drafting error in the law has led to challenges in implementing this change, with the current text suggesting that no participant would be able to make catch-up contributions. Companies, plan providers, and organizations have requested a two-year delay to the Roth catch-up rule until 2026 to allow time for system modifications. The IRS has announced relief for high earners subject to the new rule, delaying mandatory Roth catch-ups until 2026. This delay provides an opportunity to maximize pre-tax contributions until then. It is important to work with a financial or tax planner to understand how the transition to Roth catch-up contributions might impact your tax situation and retirement planning. In 2024, the 401(k) catch-up contribution limit remains at $7,500 for employees age 50, and the overall contribution limit has increased to $23,000. Catch-up contribution limits for 2025 have not yet been announced.