IRS Grants Request for 2-Year Delay on Roth Catch-Ups

IRS Grants Request for 2-Year Delay on Roth Catch-Ups

December 13, 2023

response to requests from more than 250 industry stakeholders, the IRS recently announced a two-year administrative transition period for the implementation of the Roth catch-up mandate imposed by SECURE 2.0.

SECURE 2.0 changed the catch-up contribution rules, effective January 1, 2024, to require participants whose FICA wages from the employer in the prior year exceeded $145,000 to make their catch-up contributions as after-tax Roth contributions. But a lack of IRS guidance on the details and the associated delay on being able to make administrative and programming changes to implement this provision means that plan sponsors, payroll providers, and recordkeepers will not be ready by January 1, 2024, to meet this mandate. Some plan sponsors were reportedly ready to amend their plans to eliminate catch-up contributions before 2024 just to ensure plan operations remain in compliance with the law.

Heeding pleas from the industry, the IRS issued Notice 2023-62 to provide transition relief until January 1, 2026. This means that for 2024 and 2025 plans will be deemed to meet the compliance requirements of this SECURE 2.0 provision, even if they continue to allow all participants aged 50 and older to make pre-tax catch-up contributions and the plan does not yet provide Roth accounts. The IRS also confirmed that it will treat the SECURE 2.0 drafting error that would have eliminated all catch-up contributions beginning in 2024 as corrected in advance of Congress passing a corrective bill.

The IRS indicated that it will be issuing guidance on this provision in the future and provided some insight into the following outstanding questions:

  • Are sole proprietors and partners of unincorporated businesses who do not earn “FICA” wages subject to this mandate?
    • The IRS position at this point is no.
  • Can the plan treat a participant’s election to make pre-tax catch-up contributions as an election to make Roth catch-up contributions if it is determined the participant is subject to the Roth mandate?
    • The IRS position at this point is yes.
  • Will a participant who works for different employers participating in a multiple employer plan be required to aggregate their earnings from multiple employers to determine if that participant is subject to the Roth mandate?
    • The IRS position at this point is no.
  • If a plan sponsor does not want Roth accounts in the plan, can the plan comply with the law change by restricting catch-up contribution eligibility to those who earn less than $145,000?
    • The IRS is asking for comments on this question and any other outstanding issues by October 24, 2023.
  • This welcome relief gives plan sponsors and providers time to wait for IRS guidance and then make the necessary changes to payroll, plan administration, and systems to implement this law change.

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Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. Investment Advice and 3(38) Investment Fiduciary services offered through Diversified Financial Advisors, LLC, a Registered Investment Advisor. 3(16) Administrative Fiduciary Services provided by PISTL Service Corporation. Discretionary Trustee services provided by Printing Industries 401k Trustees. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

RP-869-0923 Tracking #1-05378664 (Exp. 09/25)