The rule change has both benefits and drawbacks, experts say.\u00a0<\/p>\n
While the Roth contributions can be withdrawn tax-free in retirement, individuals could end up paying more toward\u00a0taxes in the long run, they said.\u00a0<\/p>\n
WHAT NEWSDAY FOUNDA new federal rule will require Americans age 50 and older earning more than $145,000 to pay taxes up front on 401(k) catch-up\u00a0contributions.The change could have a disproportionate impact on the retirement savings of Long Islanders, who are more likely to earn more in a region infamous for its high cost of living.Under the new rule, Roth contributions will see tax-free growth but, “for people in their peak earnings years, this change could push up taxable income and affect eligibility for other deductions or credits,” one financial adviser said.\u00a0<\/p>\n
\u201cOn Long Island, earning $145,000 in W-2 wages is quite common, particularly among dual-income households or senior professionals,\u201d said Great Neck-based adviser Jason Gilbert of RGA Investment Advisors LLC.<\/p>\n
That means \u201ca higher proportion of people in this area will be affected compared to those in regions with a lower cost of living,\u201d he said.<\/p>\n
Statewide, a little over 1.1 million people earn $140,000 or more, according to Data USA<\/a>, a platform that visualizes public data.<\/p>\n On Long Island, U.S. Census Bureau data lists the median income per household for both counties in the six figures, at $143,144 in Nassau in 2024, and $126,863 in Suffolk, Newsday has reported<\/a> \u2014 far higher than the national median income at $83,730, and $85,820 in New York.<\/p>\n That\u2019s on par with the income level needed to survive in the region.<\/p>\n A recent ALICE study on Long Island found that, in 2023, a family of four would need a \u201chousehold survival budget\u201d of at least $109,452 in Nassau, and $110,448 in Suffolk, Newsday has previously reported<\/a>.<\/p>\n Those numbers are higher with two children in child care, with Nassau families needing $133,380 and families in Suffolk needing $141,456, according to United Way.<\/p>\n The average New Yorker faces a shortfall of nearly half a million dollars in needed retirement savings, Newsday has reported<\/a>.<\/p>\n What is a catch-up contribution?<\/p>\n After turning 50, the government allows workers to make additional contributions to their retirement savings each year in the form of catch-up contributions, said Ryan Derousseau, a financial planner at Hauppauge-based United Financial Planning Group.\u00a0<\/p>\n Across the country, 70% of private industry workers had access to defined contribution plans such as a 401(k) and, as of March 2024, 50% chose to participate, according to federal data<\/a>.<\/p>\n What is the upside to the rule change?<\/p>\n Workers who invest under the rule change, which requires them to make Roth contributions<\/a> \u2014 meaning, they\u2019ll pay taxes upfront rather than when making withdrawals in retirement\u00a0\u2014 will benefit from tax-free growth, Gilbert said.<\/p>\n \u201cThis change reinforces the need for personalized planning,\u201d he added, pointing out that \u201cwhat works for a 55-year-old executive may not work for a 52-year-old educator. And Roth contributions aren\u2019t automatically better; they’re just different.\u201d\u00a0<\/p>\n It\u2019s important to \u201crevisit multiyear tax projections to determine whether it makes sense to accelerate pretax contributions through 2026 or start a Roth now to diversify tax exposure in retirement,\u201d he said.<\/p>\n Besides a 401(k), high earners can turn to other retirement planning options such as a Health Savings Account, or a tax-advantaged savings account for those\u00a0enrolled in a high-deductible health plan,\u00a0backdoor\u00a0Roth IRAs if allowed, a strategy<\/a> where a traditional IRA is converted into a Roth IRA, or taxable brokerage accounts, which \u201ccan be highly efficient when combined with tax-aware strategies such as direct indexing or municipal bonds,\u201d Gilbert said.<\/p>\n What is the downside to the rule change?\u00a0<\/p>\n A common planning strategy for individuals in their 50s, Derousseau said, is to wait to pay taxes on catch-up contributions until after they retire when they have a lower income.<\/p>\n \u201cIf you are in a higher tax bracket and you want the tax benefit today, then make sure to do more saving if you can in the next couple of years before this truly is in place,\u201d he said.<\/p>\n Also, \u201cfor people in their peak earnings years, this change could push up taxable income and affect eligibility for other deductions or credits,\u201d Gilbert said.<\/p>\n What does it take to retire on Long Island?<\/p>\n Retirement on Long Island is a challenge for many, said Jonathan Bowles, executive director at public policy think tank Center for an Urban Future.<\/p>\n Seniors in the region may be on the \u201cverge of a financial insecurity crisis,\u201d he said. \u201cWe have a boom in older folks who just aren\u2019t prepared for retirement, especially as people are living longer, especially as costs are rising across the board.\u201d<\/p>\n More than 1 in 10 Long Islanders 70 and older are not collecting Social Security income, and 45% have reported they don\u2019t receive retirement income from other sources either, he said. That includes income from 401(k)s and IRAs.<\/p>\n \u201cIt\u2019s a punishing cost of living, living in and around New York City. And when you\u2019re on a fixed income, like so many older adults are, when you have very little savings, if any, you\u2019re losing ground every year financially,\u201d he added.<\/p>\n More than half a million people were age 65 and older on Long Island in 2023, a 24% increase from 10 years earlier, Newsday has reported<\/a>.<\/p>\n On Wednesday, Gov. Kathy Hochul announced<\/a> a state-sponsored retirement savings program for private sector workers who do not have access to a retirement plan through their employer.<\/p>\n Employees who participate in the state plan will be able to set aside contributions into portable Roth IRAs.<\/p>\n Resources for seniors<\/p>\n \u201cFinancial wellness into retirement is such a big concern for so many people and it\u2019s something we all deserve,\u201d said Robyn Haberman, associate state director at AARP New York, and lead for financial initiatives at the organization, which offers several resources<\/a>.<\/p>\n AARP runs a biweekly virtual series called \u201cMoney Mindset\u201d aimed to \u201cempower people to take care of their finances,\u201d including in retirement, she said.<\/p>\n AARP also oversees a group of volunteers who help people file their taxes<\/a> for free.<\/p>\n Mostly, right now people seem to be concerned about whether they can continue to afford to support their lifestyles postretirement, she said.<\/p>\n The already high cost of living on Long Island has been pushed higher by rising prices due to inflation<\/a>\u00a0and tariffs<\/a>.\u00a0<\/p>\n \u201cI think there\u2019s a certain amount of pessimism right now, and I think that has a lot to do with that pesky inflation,\u201d she said. \u201cPeople are citing increases in household expenses, increase in debt and also health issues. Those are the top three reasons people give for being concerned about their finances.\u201d<\/p>\n Brianne Ledda covers personal finance and affordability for Newsday. She previously covered Southold and Greenport for The Suffolk Times and is a graduate of Stony Brook University.<\/p>\n","protected":false},"excerpt":{"rendered":"A change in federal retirement planning rules finalized last month could potentially impact more\u00a0people on Long Island, where…\n","protected":false},"author":2,"featured_media":200711,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,164,186,184,185,1793],"class_list":{"0":"post-200710","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy","12":"tag-finance","13":"tag-personal-finance","14":"tag-personalfinance","15":"tag-retirement"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/200710","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=200710"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/200710\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/200711"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=200710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=200710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=200710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/p>\n