RETIREMENT
Jennifer Baick, vice president of the financial planning group in the Greater Washington, D. C., office of Mercer Advisors. Other people who aren’ t subject to the rule are state and local government workers who contribute to a Social Security replacement plan, or whose wages are not subject to Social Security.
Tax Planning
If your clients made pretax catchups in the past but must now do so after taxes, Baick recommends that you run projections to determine whether they should adjust their paycheck withholdings.
Help your clients look for ways to lower their 2026 Box 3 income if they expect to be close to the threshold for falling into after-tax catch-up status for 2027. They can do this by maximizing their pretax retirement-plan contributions and their payroll deductions to health savings accounts.
They can also clip their Box 3 earnings by paying qualified expenses before taxes— for instance, they could use a cafeteria plan to pay premiums on employer-provided health, dental, and vision insurance. Or they could use a flexible spending account for eligible healthcare and dependent-care expenses. Transportation fringe benefits may be paid pretax, too, Baick says.
Those strategies aside, plan participants will need more education about Roth accounts in general, practitioners say. Fidelity Investments said that in the second quarter of this year only 7.1 % of participants in the 401( k) plans that the company administers were using a Roth option, even though it was offered by 94.6 % of the plans. So many workers will be new to the Roth world.
An Oft-Overlooked Technique
Your clients might benefit from converting their pretax 401( k) assets into Roth accounts within the plan( a move referred to as an“ in-plan rollover.”) Schwab Retirement Plan Services says 70 % of the 401( k) plans it administers with a Roth option permit an in-plan conversion, something you can educate your clients( and prospects) about. The number of conversions per year might be limited, however, and, more important, the client will need to cough up funds to pay Uncle Sam the taxes because there is no withholding on in-plan conversions.
CPA Kyle James, managing director at Modern Wealth Management in Mooresville, Ind., recommends clients make pretax contributions and convert them inplan when there is a market correction. The pretax contributions create a tax deferral, so when the client converts the monies at
If your clients made pretax catch-ups in the past but must now do so after taxes, Baick recommends that you run projections to determine whether they should adjust their paycheck withholdings.
lower values, it leads to a permanent savings of the deferred tax, James says. And in a subsequent market rebound, the growth would be tax-free in the Roth.
James also recommends that clients convert their employer’ s matching contributions, which are pretax, as a way to increase their Roth money.
Yet another strategy for clients is that, optimally, they make their before-tax contributions in high-bracket years and convert them in low-bracket ones. James has a client with a sizable pretax 401( k) who began a series of in-plan conversions in his late 50s, after his spouse retired and the couple’ s marginal tax rate fell.
Sadly, the wife recently passed away. Now that the client is filing as a single taxpayer, he’ s back in a higher bracket,
James reports.“ Thankfully, we were able to get quite a bit converted before his wife passed, and now he has more tax-efficient distribution options having done all those in-plan conversions.”
More To Impart
Some folks may not be aware of the“ super catch-up,” first effective in 2025, and planner Michael Ruger suggests that you reach out to your clients who in 2026 are reaching the ages of 60, 61, 62 or 63.
A client who turns age 60 at any time during the year is eligible for the full enhanced amount.“ It’ s not pro rated,” explains Ruger, managing partner at Greenbush Financial Group in Albany, N. Y.
Notably, the super catch-up is not available beginning the year the client turns 64.
For Those Who Keep Working And Working And...
So what if retirees are still working, perhaps at a new company? Should they continue to participate in a retirement plan?
Many of them likely have never considered the idea. But it can make tax sense, according to Ruger. After all, it allows those workers to contain their income by making pretax contributions— and that could afford them a larger senior deduction and smaller Medicare premiums and might optimize other income-based benefits.
Yes, the contributions would reduce their take-home pay, which is often fun money they covet. But affluent retirees tend to have a healthy cash reserve they can draw from to offset a smaller paycheck, Ruger says.
Even part-time workers may be able to contribute, he says. Under the SE- CURE 2.0 Act of 2022, an individual who has worked for an employer at least 500 hours for two consecutive years must be allowed to participate in the employer’ s 401( k) plan or 403( b) plan that is subject to the Employee Retirement Income Security Act( ERISA).
Ruger notes that companies are not required to provide employer contributions to these workers. So they may not get a company match.
48 | FINANCIAL ADVISOR MAGAZINE | DECEMBER 2025 WWW. FA-MAG. COM