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Potential Senate tax tweak would curb pretax 401(k) catch-up contributions

  • Employees over age 50 can now contribute an additional $6,000 to their retirement plans.
  • The bill raises this amount to $9,000, but you must pay income taxes upfront.

Senator Orrin Hatch, a Republican from Utah and chairman of the Senate Finance Committee.Zach Gibson | Bloomberg | Getty Images

Workers over age 50 would no longer be able to make catch-up contributions on a pretax basis to their retirement plans under a new amendment to the GOP's Senate version of the tax bill.

Orrin G. Hatch, chairman of the Senate Finance Committee, filed the amendment to the bill on Monday.

The full text of the bill is here, and amendments are here.

This amendment would permit workers over age 50 to contribute up to an additional $9,000 each year to their retirement plans, but it would require that these contributions be made to Roth accounts. Those are accounts where taxes are paid upfront.

Currently, employees over age 50 can contribute up to $6,000 in additional savings each year to their 401(k) plan and do so on a pretax basis. That's on top of the current annual $18,000 limit.

Pretax versus after-tax

Assuming tax rates go up in the future, contributing to a Roth in the present and paying income taxes now may make sense if you're already in a low tax bracket.

However, employees who are now in a higher tax bracket and expect to bring in far less income in retirement may be at a disadvantage if they're saving catch-up contributions in Roth accounts.

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