On Friday, August 25, 2023, the IRS provided some very welcome, if temporary, relief from one of the more unwelcome provisions of the SECURE 2.0 Act of 2022. IRS Notice 2023-62 delays implementation of the requirement that certain catch-up contributions be made on a Roth, after-tax basis.
As background, 401(k) plan participants who have attained age 50 are permitted to make additional, “catch up” contributions. For 2023, the basic limit on 401(k) elective deferrals is $22,500. Catch-up eligible participants can contribute an additional $7,500 for a total of $30,000. Under existing law, plan participants can elect for themselves to make catch-up contributions on a pre-tax or after-tax Roth basis (if permitted by the plan).
As we described in our January 26, 2023 alert, SECURE 2.0 will require that any catch-up contributions by participants whose wages for the preceding year from the plan sponsor exceed $145,000 (indexed for inflation) be made on a Roth basis. This change, scheduled to take effect January 1, 2024, posed significant administrative and implementation challenges for plan sponsors and their service providers. For example, sponsors of 401(k) plans without Roth contributions were seemingly faced with the difficult choice of having to add Roth contributions or eliminating catch-up contributions for all employees.
The notice delays implementation of the Roth catch-up requirement until January 1, 2026. Until then, plans may continue to allow high earners to make pre-tax catch-up contributions, and plans without Roth contributions may continue to allow catch-up contributions.
* * *
If you have any questions or concerns about how SECURE 2.0 impacts catch-up contributions, or any other aspect of your plan, please contact Andrew Roth of our office, ARoth@dmlawyers.com, (914) 220-8033.
