On Friday, the Internal Revenue Service announced an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions.
At the same time, the IRS also clarified that plan participants who are age 50 and over can continue to make catch up contributions after 2023, regardless of income.
The much-anticipated new guidance issued Friday afternoon solves a pressing matter that had the retirement industry in a bit of a panic. A large number of retirement industry organizations—including prominent lobbying groups and 401(k) recordkeepers—called for the government to delay a key SECURE 2.0 change that was set to kick in Jan. 1 2024 that would have caused many 50-and-older retirement plan participants to lose the ability to make catch-up contributions.
“The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement.”
IRS Notice 2023-62 issued Friday
Saying they need more time to meet the logistical challenges of identifying who earned more than $145,000 the previous year and retooling payroll systems to make sure catch-up contributions are made on a Roth basis, industry stakeholders requested relief from the impending deadline.
Today’s announcements were included in Notice 2023-62, now posted on IRS.gov. This notice provides initial guidance for section 603 of the SECURE 2.0 Act, enacted in December 2022. Under that provision, starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a 401(k), 403(b) or governmental 457(b) plan and whose prior-year Social Security wages exceeded $145,000.
Now they have it.
The IRS announcement said the administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement. The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.
The Treasury Department and the IRS plan to issue future guidance to help taxpayers, and the notice describes several positions that are expected to be included. In addition, the notice invites public comment on the matters discussed in the notice and suggestions for the future. The notice provides details on how to submit comments.
SEE ALSO:
• 401(k) Industry Still Pleading for Delay in SECURE 2.0 Catch-Up Contribution Requirement
• Leading Organizations Request Roth Catch-Up Contribution Delay
• Glitch-Fixing: How 2024 Catch-Up Contributions Could Be Restored in SECURE 2.0
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
