New Catch-Up Limits Under Secure Act 2.0
As a plan sponsor, it’s crucial to stay informed about
legislative changes that impact retirement plans. The Secure Act 2.0, signed
into law on December 29, 2022, introduces several significant updates aimed at
enhancing retirement security for Americans. One of the key optional provisions
is a potential change in catch-up contribution limits for retirement plans,
which will take effect for 2025 plan years.
Starting in 2025, Plan Sponsors may allow for increased
catch-up contribution limits for participants aged 60 to 63. Under the new
rule, these individuals would be able to contribute up to $10,000 per year or
150% of the standard catch-up contribution limit, whichever is greater
This increase is intended to provide a significant boost to
retirement savings during the critical years leading up to retirement.
Roth Requirement for High Earners in 2026
Another important change is the requirement for high earners
to make catch-up contributions on a Roth basis. Employees with incomes greater
than $145,000 will need to make their catch-up contributions as after-tax Roth
contributions
This change aims to ensure that higher-income individuals
pay taxes on their contributions upfront, potentially reducing their tax burden
in retirement.
Implications for Plan Sponsors
As a plan sponsor, it’s essential to understand these
changes and communicate them effectively to your employees. Here are a few
steps you can take:
- Update
Plan Documents: Ensure that your plan documents reflect the new
catch-up contribution limits and Roth requirements.
- Educate
Employees: Provide clear information to your employees about the new
limits and how they can take advantage of them.
- Coordinate
with Payroll: Work with your payroll provider to ensure that the new
limits are correctly implemented and that contributions are tracked
accurately.
- Review
Plan Design: Consider how these changes might impact your plan design
and whether any adjustments are needed to optimize retirement savings for
your employees.
By staying informed and proactive, you can help your
employees maximize their retirement savings and ensure compliance with the
latest legislative changes. For more information on how the Secure 2.0 may
impact your retirement plan, contact the Innovative Investment Fiduciaries, LLC
team at 856-242-3340 or email resources @iifria.com.
