IRS Issues Reprieve on Roth Catch-Up Contribution Requirement

On August 25, 2023, the IRS delayed the requirement, originally slated to be effective in 2024, that catch-up contributions for higher earners be made on a Roth basis.  Now, that provision will be effective in 2026.  This applies to 401(k), 403(b) and governmental 457(b) plans.

SECURE 2.0 requires that individuals whose prior year wages exceed $145,000 and who are eligible to make catch-up contributions make those catch-up contributions on a Roth basis, starting in 2024.  Employers faced a number of administrative hurdles in preparing for that requirement, including adding a Roth feature if their plan did not already have one, and coordinating with payroll to ensure that the applicable catch-up contributions would be made post-tax. 

Industry groups, and plan recordkeepers like Fidelity and Vanguard, had appealed to Congress and the IRS for more time to align systems with the SECURE 2.0 requirement, and the IRS responded.  In Notice 2023-62, the IRS announced a 2-year administrative transition period, which the IRS’ website says “ 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.”

For more information as to how this applies to your plan, contact Kelly Hathorn.