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Secure 2.0 Law Brings Tax Changes for High Earners' Retirement Savings

High earners, prepare for changes in your retirement savings. The Secure 2.0 law brings new rules for catch-up contributions and inherited accounts, offering tax-free growth but potentially higher taxes now.

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Secure 2.0 Law Brings Tax Changes for High Earners' Retirement Savings

Starting next year, high earners will face changes in their retirement savings strategies due to the Secure 2.0 retirement law. The new rules affect catch-up contributions and inherited retirement accounts, offering both higher taxes now and future tax-free growth.

The Secure 2.0 law introduces a significant change for high earners making catch-up contributions to their 401(k)s. Currently, these contributions are taxed when withdrawn, providing an immediate tax break. However, starting next year, catch-up contributions for those earning over $145,000 in FICA wages will be treated as Roth 401(k) contributions.

This means these contributions will be subject to income tax upfront, but will then grow tax-free, with tax-free withdrawals assuming certain conditions are met. This change may result in higher taxes now, potentially reducing take-home pay. However, it also offers advantages such as no minimum withdrawal requirements at age 73 and tax-free growth and withdrawals for Roth 401(k) contributions.

The new law also affects individuals who inherit 'designated beneficiary' status under 401(k) plans or other tax-deferred employer retirement plans. The regulations concerning 'inherited IRAs' or 'inherited account' rules will now apply to these individuals.

The Secure 2.0 retirement law brings changes that may impact high earners' retirement savings strategies. While these changes may result in higher taxes now, they also offer advantages such as tax-free growth and withdrawals for Roth 401(k) contributions. It's important for affected individuals to understand these changes and adjust their financial planning accordingly.

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