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IRS change on 401K contribution limits for employees 50 or older

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Summary

Handling the IRS change on 401K contribution limits for employees 50 or older in Sage 100 Contractor.

Description

Overview

The IRS has updated 401(k) contribution rules for employees aged 50 or older. This change affects catch-up contributions for high earners.

What's changing

If your prior-year wages exceed $150,000, all catch-up contributions for employees aged 50 or older must be Roth contributions, not pre-tax.

Why this matters

Employees who qualify for catch-up contributions and earn more than $150,000 in the prior year can't make pre-tax catch-up contributions anymore.

What you need to do

  1. Confirm if your prior-year wages exceed $150,000.
  2. If yes, set up a Roth IRA payroll calculation for all catch-up contributions.
  3. Add the Roth IRA item to the Calculations tab of your 5-2-1 Employees record.
  4. Review your retirement plan elections for accuracy.

Key points

  • The rule applies only to employees aged 50 or older.
  • High earners can't make pre-tax catch-up contributions.
  • Roth contributions use after-tax dollars but grow tax-free.