WEBVTT 00:00:00.000 --> 00:00:21.025 Hey, everybody. Welcome back to another episode of Retirement Answers, a podcast built to help you answer your retirement questions if you are in retirement or if you're thinking about retirement. My name is Jacob Duke. I'm a certified financial planner, and I help people just like you retire on a daily basis and, help you successfully stay retired. So, this is a podcast that's built around all things retirement. 00:00:21.025 --> 00:00:55.885 So if you have retirement questions, then I probably have answers. And today I wanted to talk through Catch-Up contributions and some of the big changes that are gonna be taking place in 2024. Now, if you're over age 50 and you're making Catch-Up contributions to your four zero one ks, this is going to be an important episode for you to pay attention to because there are some big changes that you need to know about coming up next year. Now, just to be clear, I wanna make sure you know that this is for only employer plans like four zero one k's, four zero three b's, different plans like that, four fifty seven's. This does not apply to your traditional IRAs or Roth IRAs. 00:00:55.885 --> 00:01:18.875 Okay? So just to make sure we're clear on that, it's for employer plans only. And we know that if you're 50 or older, you can make it catch up contributions to your retirement accounts. So this year in 2023, you can put up to 22,500 as a normal contribution into your four zero one k. And then if you're 50 or older, you can do an additional 7,500 as your catch up contributions. 00:01:19.035 --> 00:01:46.455 But due to the SECURE Act that was passed back in December 2022 just for the new year, there are some big changes that are starting to take place in 2024. So let's go ahead and break this down. Right now, if you make a Catch-Up contribution, you can choose to have that as a pretax or a Roth contribution, meaning you have the choice. You can pay the tax now or you can pay the tax later. Well, in 2024 and beyond, you could be forced to make those Catch-Up contributions to Roth only. 00:01:46.455 --> 00:02:13.615 So, yes, you heard that correctly. You might have to make all of your Catch-Up contributions to the Roth side, but it's dependent on one thing, and here is what would cause that. If you earned $145,000 in wages or more in the previous calendar year, your Catch-Up contributions will have to be Roth, Meaning, you gotta pay those taxes as normal income, and then that money, your catch up contributions will go into the Roth portion of your four zero one k. So that all makes sense. Right? 00:02:13.615 --> 00:02:39.245 We understand that's the case. If you earn $1.45 or more, you have to make your catch up contributions to Roth, but it's not quite as simple as it seems. So let's walk through an example to look at this a little bit more. So let's just say that Sally, she's 55, she's making $200,000 a year, and she's making Catch-Up contributions to her four 01K account. So in this example, she's obviously above the $145,000 wage limit. 00:02:39.325 --> 00:03:12.495 Therefore, all of her Catch-Up contributions beginning in 2024 will have to be into the Roth portion of her four zero one k. Now that one's easy to understand, so let's change this up a little bit. Let's say that Sally changes jobs in January 2024 and moves on to another company, and she's gonna be making $200,000 there at the new job, and now she's 55 or 56. Regardless, she's over age 50 still, and she's still gonna be making those Catch-Up contributions. So would she be obligated to make those Roth Catch-Up contributions because she's still earning above 145? 00:03:12.815 --> 00:03:54.850 Would she still have to do those to Roth as opposed to being able to choose? Well, the interesting part of this new rule is that it refers to wages paid in the preceding calendar year from the employer sponsoring the plan. So, the money that Sally earned last year at her old job would not be counted towards this year because she is now under a new plan with a new company. So, her new company has not paid her anything at all in the past. Therefore, she wouldn't have to follow this new rule because the rule says that the wages had to be paid the preceding calendar year from the employer sponsoring the plan, and her new company is her new employer sponsored plan, and she doesn't have any wages from the previous calendar year from that specific company. 00:03:54.850 --> 00:04:16.490 So in 2024, Sally would not have to make any of those Catch-Up contributions to the Roth portion of her four zero one ks simply because she changed jobs in 2024. So that's an interesting nuance to this rule and definitely something to pay attention to. Now I want to acknowledge that not all four zero one ks plans even have a Roth option. Right? Some Some of you are like, hey, Jacob, my my plan doesn't have a Roth option available to it. 00:04:16.650 --> 00:05:13.990 Well, employer plans, they can, and that's an I wanna emphasize that they can have a Roth option, and they're not required to. So what happens if you're over age 50 and you're earning that 145 or more and you're trying to make catch up contributions? Well, the SECURE Act 2.0, it pretty much addresses this, head on because it says that if the plan does not allow individuals to make catch up contributions to a Roth account, the Catch-Up contribution rules will not apply to that plan for any of the employees, whether you're above or below. So, if you don't have a Roth option available to you and you're 50 or older and you make more than $145,000 you would be obligated to make those, Catch-Up contributions to the Roth. If that Roth option is not available in your plan, then you can't make a Catch-Up contribution and no one else in the company, regardless of if they were above one forty five or below one forty five, they would not be able to make any catch up contributions at all because of how this rule is written. 00:05:14.150 --> 00:05:50.605 So this is a really big deal, and it's basically the way that the IRS is somewhat forcing their hand to to make employers provide a Roth option Because if they don't, then obviously all their employees will be really upset whenever they're 50 or older and can't make any catch up contributions because someone in the plan would be required to make Roth contributions. So, this is pretty much the IRS's way to say, Hey, look, you've got to add Roth options to all plans in order for this, to work. If not, your employees will be unhappy and probably leave. So that's their way of pretty much making every company do that. So, there's just a lot changing here in 2024 with some of these SECURE Act things. 00:05:50.605 --> 00:06:09.840 Some of the SECURE Act changes have already taken place. We know about RMDs and how that's changed. So under the new SECURE Act two point o rules, the first RMDs under the new rules will be begin taken in 2024, for folks who are 73 at that point. So there's just a lot there, and I hope to continue updating you on a few of these things. That way you're aware of some of the changes that'll be taking place. 00:06:10.000 --> 00:06:39.100 But today, just wanted to tell you a little bit about, these different Catch-Up contribution kinda rules that are gonna be coming out in 2024 and how they might affect you, especially for those of you who are over $145,000 of wages. So there's just a lot going on with the SECURE Act two point o and some of the different rules that are still yet to roll out and will continue to be rolled out in 2024 and beyond. But that's what I had for you this week. I just wanted to make sure you are aware of that and stay updated on those Catch-Up contribution rules. Thank you so much for tuning in to this week's episode of Retirement Answers. 00:06:39.180 --> 00:06:41.180 I look forward to talking with you again next week.