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If you’re a high-income earner, a new rule that will affect how you save in your retirement plan has been postponed to 2026. The rule requires some retirement plan participants to make catch-up contributions with Roth after-tax money. Catch-up contributions allow those age 50 and older to save beyond the standard IRS limits in their plan.
The rule was set to start in 2024
It would have applied to those earning more than $145,000 in FICA wages in 2023. It will now apply to tax years 2026 and later. Those who are impacted can continue to make catch-up contributions on a pre-tax basis until this time. Note: The wage limit is tied to inflation, so it may change.
Vanguard and other stakeholders in the industry requested the delay. In August, the IRS released a notice announcing a 2-year transition period, recognizing the complexities of putting this rule into place.
As a reminder, both Roth and pre-tax contributions give you a tax break.* The difference is when you get it.
- With Roth, you pay taxes now. But you'll get a tax break later on your earnings, as long as you're at least age 59½ and you made your first contribution at least 5 years before.
- With pre-tax, you get a tax break now. You'll pay taxes later—when you take the money out.
How the delay can help
What’s next?
Whenever you invest, there’s a chance you could lose the money.
*Taxes: Taking money from your retirement account can affect how much you'll have to pay in taxes. You'll owe taxes on pre-tax money. You won't owe taxes on Roth earnings as long as you are age 59½ or older and it's been at least five years since your first Roth contribution. If required by law, Vanguard will withhold some taxes for you. You may need to pay a 10% federal penalty tax if you take money out early.
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