In 2022, the SECURE 2.0 Act included significant changes to retirement catch-up contributions. Originally scheduled to be effective after December 31, 2023, it will go into effect after December 31, 2025, because plan administrators needed more time to implement the changes.
The new regulations require that if a 401(k) plan permits Roth contributions, participants who are age 50 or older can make additional catch-up contributions, but they must be designated as Roth contributions if their FICA wages for the preceding calendar year exceeded $145,000. However, this amount is indexed for inflation annually. Therefore in 2025, the Roth treatment of catch-up contributions will be for participants whose FICA wages exceeded $150,000. As a reminder, Roth contributions are not pre-tax but are included in your gross income in the year of the contribution. If you do not receive FICA wages, you will not be subject to the Roth catch-up requirement in 2026.
For 2026, if you are age 50 or older, the standard deferral limit allowed is $24,500, with an additional catch-up contribution of $8,000. You may elect to make this catch-up contribution on either a pre-tax basis or as after-tax Roth contributions, unless of course your FICA wages exceed $150,000.
There is also a “super catch-up” offer for plan participants ages 60-63, which allows an additional $3,250 to the allowable $8,000 in catch-up for 2026, totaling $11,250.
Mitigating Medicare Surcharges with QCDs
Qualified charitable donations (QCDs) from traditional IRA accounts may help mitigate a larger tax bill and higher Medicare premiums.
Here is a brief overview of the process and requirements:
If you are 70 ½ or older, you can transfer up to $110,000 directly from your IRA to a qualified charity in 2026. You cannot withdraw the funds and then write a check. Married couples can make a separate QCD from their own account up to the $110,000 limit, therefore excluding up to $220,000 of income per married couple.
Things to consider:
• You are only allowed to make a QCD to a qualified 501(c)(3) charity and must obtain a written documentation of the donation(s).
• You can only make the transfers from IRAs. You cannot make a QCD from a 401(k) or other workplace retirement plan.
• You must wait until the day you turn 70 ½ or after to make the QCD.
• You can impact your future Medicare premiums, which are based on the income reported on your tax return from two years prior.
• You can make a QCDs from inherited IRAs, as well as inactive SEP IRA plans and inactive SIMPLE IRA plans.
Benefits:
• If you are 73 or older, the QCD will count toward your annual required minimum distribution (RMD), but it needs to be done before withdrawing your RMD for the year.
• The QCD is not taxable to you and is not added to your adjusted gross income, which can help mitigate the surcharges on your Medicare premiums. Even if you don’t itemize, you still benefit because of the higher standard deduction.
Visit the CMS.gov newsroom to view the 2026 Medicare Parts A & B Premiums and Deductibles, and Medicare Part D Income-Related Monthly Adjustment Amounts (IRMAA). The IRMAA is a surcharge on Medicare Part B and Part D premiums based on your Modified Adjusted Gross Income (MAGI) from two years prior. A QCD affects this calculation by being excluded from your MAGI, potentially lowering your income below an IRMAA threshold.
Other Changes
The One Big Beautiful Bill Act (OBBBA) also includes phase out levels for some of the new deductions, such as the additional $6,000 deduction for those 65 and older, as well as deductions for qualified tips (up to $25,000), overtime wages (up to $12,500), car loan interest (up to $10,000), and state and local taxes (up to $40,000).
Feel free to contact Kakenmaster & Associates if you have any questions regarding how a QCD may affect your taxes and potentially mitigate higher premiums for Medicare Part B and Part D, along with the new tax benefits from the OBBBA.