Believe it or not, Congress does make mistakes. They were rushed to pass the massive retirement savings legislation in the updates on the Secure 2.0 Act and they have made an error that prevents 401k Catch-Up Contributions.
Catch-up contributions can be critical in preserving the ability to retire with financial flexibility. This is especially true for individuals who have not been saving for retirement during their lifetime. Catch-up contributions may allow some individuals to have tax benefits.
What Mistake Did Congress Make with the 401k Catch-Up Contributions?
By the elimination of a subparagraph in Section 603 of the legislation, lawmakers accidentally eliminated the ability for anyone to make any Catch-Up Contributions whether Roth or Pre-Tax.
The technical error was identified by the American Retirement Association. They, in turn, alerted the Treasury Department and the Joint Committee on Taxation. The error was deemed as a simple mistake and lawmakers are just glad that they were able to catch it early in the year.
The 401k and IRA Catch-Up Contribution is for individuals ages 50 or older and between $1000 to $6500 depending on your type of account.
When Congress passed the Secure 2.0 Act earlier this year, they accidentally nicked this, meaning they discontinued the Catch-Up Contributions altogether. Instead, they’re stuck at the typical contribution that everyone else has to has to make, which is the annual 401k contribution limit.
How Does Congress Plan to Fix the Issue of the 401k Catch-Up Contributions?
Lawmakers do have plans to go in there and change this then add it to the point where you can make 401k Catch-Up Contributions again. We will most likely hear about this update soon. This was obviously a mistake and it should take into effect sooner rather than later.
The intention of the Secure 2.0 Act was to require that Catch-Up Contributions in workplace retirement plans be Roth contributions. However, there is an exception for individuals who make less than $145,000. These individuals will be permitted to make pre-tax contributions.
The Chief Government Affairs Officer of the American Retirement Association, Will Hansen, had this to say:
“It was a simple mistake. It is not uncommon to have some errors when drafting major pieces of legislation such as the 350-page Secure 2.0 bill. I think we’re just glad that we caught this error early in the year.”
Hansen also anticipates that a statutory fix will be needed to make sure that individuals can make 401k Catch-Up Contributions by the next year.
“It’s a technical correction. I think there were amazingly a few glitches in such a long bill. The Hill is aware of it and I feel confident that they will take care of it in a timely way.”
- Kent Manson, Partner at Davis & Harman