Retire Wise | October 2023

IRS Delays New Catch-Up Provision Until 2026

In August 2023, the IRS announced a two-year delay in the effective date for a new rule requiring catch-up contributions in employer-sponsored plans to be made on a Roth basis for higher-income wage earners. The new Roth contribution requirement was among a number of provisions in the SECURE 2.0 Act, which was passed in December 2022. Specifically, the rule would require workers making $145,000 or more, who participate in a 401(k), 403(b) or governmental 457(b) plan, to make all catch-up contributions on an after-tax basis, effective January 1, 2024.

This deadline has been extended to January 1, 2026 to allow for a smoother transition for taxpayers and their employers to comply with the new Roth catch-up requirement. The IRS also clarified that:

• Plan participants who are age 50 and over, and whose prior-year Social Security wages exceeded $145,000, can continue to make catch-up contributions with pretax dollars until the new rule goes into effect in 2026.
  
  
• Individuals who earn $144,999 or less are exempt from the upcoming change and can continue to deduct their contributions to an employer-sponsored retirement account, which includes catch-up contributions.¹

For savers nearing retirement, the ability to shield catch-up contributions from taxation can help lower their tax bills during their peak earning years by reducing their taxable income by the amount of their catch-up contribution. The maximum catch-up contribution for employer-sponsored plans for 2023 is $7,500.

However, once the new requirement goes into effect in 2026, catch-up contributions for higher earners will go to Roth accounts, which are funded with dollars that have already been taxed. Yet, the new requirement is not entirely without merit. Qualifying Roth withdrawals are not subject to income taxes and Roth accounts are not subject to required minimum distributions (RMDs). Generally, once you reach age 73, you must begin taking RMDs from retirement accounts where contributions were made on a pre-tax basis. Because there is no RMD requirement for Roth accounts, these investments can grow tax-deferred for longer.²

If you have questions about how this new rule may impact your retirement strategy, let’s schedule time to talk.

^{1 ”IRS announces administrative transition period for new Roth catch up requirement; catch-up contributions still permitted after 2023.” IRS.gov, 25 AUG, 2023, https://www.irs.gov/newsroom/irs-announces-administrative-transition-period-for-new-roth-catch-up-requirement-catch-up-contributions-still-permitted-after-2023.
2 “What is a Roth 401(k)?” Ceterainvestorcenter.com, https://www.ceterainvestorcenter.com/resource-center/retirement/what-is-a-roth-401k. Accessed 29 SEP 2023}

6 Ways Reading Contributes to Your Well-Being

Whether you read for fun and relaxation or to increase your knowledge base, it turns out that reading provides some amazing health benefits. Best of all, you don’t even have to hold a book or a tablet in your hand to reap the rewards. Audio books were found to provide the same positive effects.

How reading impacts the body and mind
Multiple studies that looked at the effects reading has on the human body and brain found that this simple activity can have a powerful impact on overall well-being. One study that measured the effects of yoga, humor, and reading on stress levels found that 30 minutes of reading lowered blood pressure, heart rate, and feelings of psychological distress just as effectively as yoga and humor did. Specifically, reading was found to help:¹

1. Strengthen the brain
2. Increase empathy
3. Reduce stress
4. Aid sleep
5. Alleviate depression
6. Prevent cognitive decline

Another study found that people who did mentally stimulating activities like reading throughout their lives were less likely to develop plaques, lesions, and tau-protein tangles, all of which are commonly found in the brains of people with dementia. Using MRI scans, researchers confirmed that reading involves a complex network of circuits and signals in the brain. Not only does it stimulate every part of your brain, but it also enhances connectivity between the different regions. And some of these effects can last for days after your last read.² This is among many reasons why the National Institute on Aging believes that reading can be particularly beneficial as you age. Although research hasn’t proven that reading prevents diseases like Alzheimer’s, studies show that seniors who read and solve math problems every day are better able to maintain and improve their cognitive functioning.³

Whether you prefer the tactile experience that comes from holding a printed book in your hand or prefer the audio version, hundreds are available for free through public libraries and audio streaming services. And since October is National Book Month, there’s no better time than now to boost your sense of wellbeing by getting lost in a good book.

^{1 Stanborough, Rebecca Joy, ”Benefits of Reading Books: How It Can Positively Affect Your Life.” Healthline.com, 15 OCT 2019, https://www.healthline.com/health/benefits-of-reading-books.
2 Ibid.
3 “Cognitive Health and Older Adults.” Nia.nih.gov, https://www.nia.nih.gov/health/cognitive-health-and-older-adults. Accessed 28 SEP 2023.}

^{This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.}

^{This communication is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.}