Employer-matched 401(k)s, IRS Roth catch-up: Ask Yahoo Finance

00:00 Speaker A

Well, it’s now time for Ask Yahoo Finance Anything where we answer your personal finance questions. This week, I’m joined by Bob Powell, host of the Decoding Retirement podcast. Bob, let’s get right into it. Our first question here. One Yahoo Finance reader asks, I’ve read recently that some companies are suspending 401k matches. How can I prepare if my company does the same?

00:21 Speaker B

Yeah, so Ellie, it’s not widespread yet, but you do want to prepare. So, let’s say you’re contributing 6% of your pay to your 401k and your company’s contributing say 3%. That brings your annual total to 9%. So, if your company suspends that match, you could increase your own contribution to 9%. But if that feels like too much, you could do it gradually. Maybe when you get a raise, put that into your 401k, or maybe sign up for auto escalation where you could increase the amount that you contribute by say 1 percentage point per year.

00:46 Speaker B

Now, if you’re older and you can’t raise your savings rate, you may need to adjust your retirement plan. Maybe you need to delay retirement by two years, or maybe you need to think about what your expenses will be in retirement and trim them, or maybe you need to do both of those things.

00:59 Speaker A

We have a question from another reader. I heard the IRS just finalized rules on Roth catchup contributions. What does this mean for me? So, yet another retirement question here for you, Bob.

01:08 Speaker B

Yeah, I know. It’s my bread and butter, isn’t it? So, sort of eat, breathe and sleep all things retirement. So, if you’re 50 or older, the IRS allows you to make up what are called catchup contributions. So, for 2025, the regular contribution limit is 23,000, but if you’re 50 and older, you can contribute an additional $7,500, which brings the total to 30,500. Now, beginning this year, there’s a new law that created what’s called a special new catch-up contribution for people who are ages 60 to 63.

01:34 Speaker B

And during those years, you’re able to contribute the higher of $10,000 or 150% of the standard uh catchup contribution amount. So, once you turn 65 though, those limits reverts back to the regular contribution, the regular catchup contribution. And I should note that not all employers, employers are just not um required to offer this special feature. Um there’s a second change I should mention Ally, which is this applies to higher earnings. And this is what the IRS notice was about. So starting next year, anyone with wages of $145,000 or more from their employer, uh must make all catchup contributions to a Roth 401k. And if your plan doesn’t offer the Roth option, you won’t be able to make up the catchup contribution.

02:01 Speaker A

All right, Bob, some great answers there. Appreciate it as always.

02:04 Speaker A

Well, that’s it for Mind Your Money. Scan the QR code below to sign up for the Mind Your Money newsletter and stay tuned for market domination. That’s coming up next.