SECURE 2.0 eliminates pretax 401(k) catch-up deductions for earners over $150,000, pushing tax-efficient HSAs to the forefront.
SECURE 2.0 mandates Roth-only 401(k) catch-up contributions for workers earning over $150,000, removing up to $2,700 in annual federal tax deductions. High earners now prioritize Health Savings Accounts (HSAs) for their triple tax advantages.
Previously, a 55-year-old in the 24% bracket could reduce federal taxes by $1,900 using an $8,000 catch-up contribution. The $11,250 super catch-up for ages 60-63 once cut taxes by roughly $2,700. HSAs, paired with high-deductible plans, offer tax-free contributions, growth, and withdrawals for medical expenses.
A $9,750 annual HSA contribution compounding at 7% for 10 years could grow to $135,000 tax-free. High earners in the 32% bracket, facing income over $201,775, view HSAs as the most tax-efficient option remaining under current tax code rules.