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Safe 2.0 Drafting Error Threatens Catch-Up Contributions


What You Have to Know

  • It seems that a legislative drafting error, if uncorrected, might jeopardize the power to make catch-up contributions to retirement accounts.
  • Consultants say technical correction is probably going, even in a carefully divided Congress with quite a bit to do.

A significant technical drafting error that made its method into the sweeping Safe 2.0 Act laws would ban all retirement account catch-up contributions after 2024, in keeping with retirement trade media reviews that first emerged Tuesday afternoon.

As first reported by the American Retirement Affiliation’s John Sullivan (previously of ThinkAdvisor), the drafting error entails Part 603 of the Setting Each Group Up for Retirement Enhancement (Safe) 2.0 Act. This part of the regulation is meant to require that catch-up contributions be directed to post-tax Roth accounts in circumstances the place the contributor earns greater than $145,000 of FICA-covered wages.

However, because the ARA reviews, it seems that the advanced means of meshing the Safe 2.0 Act’s Roth catch-up requirement with the preexisting textual content of the Inside Income Code has resulted within the approval of statutory language that can, if not modified, completely get rid of the chance for retirement savers to make catch-up contributions to both conventional or Roth-style accounts.

This end result would symbolize a major departure from the laws’s said intent, as amongst its many retirement focused-provisions, the Safe 2.0 Act considerably boosts 401(okay) plan retirement account catch-up contribution limits. Particularly, the utmost limits are slated to extend from $7,500 in 2023 to $10,000 for taxpayers aged 60, 61, 62 or 63 for tax years starting after 2024.

The catch-up contribution restrict can be elevated to $5,000 for SIMPLE retirement plans, and for IRAs, the $1,000 catch-up contribution restrict can be listed for inflation starting in tax years after 2023. As famous, beginning in tax years starting after 2023, all catch-up contributions for these incomes greater than $145,000 can be handled as Roth contributions.

A Large Deal or Headline Hype?

Knowledgeable reactions had been decidedly combined because the ARA’s eye-grabbing headline made the rounds throughout the retirement planning trade on Tuesday afternoon.

Planning professional Ed Slott of Ed Slott and Co. tells ThinkAdvisor the problem quantities to a “technical error within the regulation that can be fastened.”

“I don’t suppose the plan catch-up provisions are in danger,” Slott says. “This provision shouldn’t be efficient till 2024, and will probably be fastened by then.”

Within the advocacy group’s authentic report, ARA CEO Brian Graff says a well timed correction is vital, and the true query is “when there can be a legislative car on this Congress to get this executed.”

Within the meantime, Graff says, it’s unclear to the ARA whether or not the Treasury Division has the regulatory authority to disregard the error.

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