IRS Delays Effective Date of Mandatory Roth Catch-Up Rule Until 2026
Last Friday afternoon (August 25, 2023), the IRS gave employer plans two more years to comply with the controversial SECURE 2.0 rule requiring “catch-up contributions” for high-paid employees to be made on a Roth basis. The effective date of the rule was postponed from January 1, 2024 to January 1, 2026. The delay is set forth in IRS Notice 2023-62.
Most 401(k), 403(b) and governmental 457(b) plans allow age 50-or-older employees to make catch-up contributions on top of regular elective deferrals. The limit for catch-ups in 2023 is $7,500, allowing for total deferrals of up to $30,000.
Beginning in 2024, SECURE 2.0 requires that certain high-paid employees who want to make catch-ups must have them allocated to a Roth account. Mandatory Roth catch-ups only apply to employees who have “wages” above a certain dollar amount in the previous year. For 2024, that dollar amount would have been $145,000 of 2023 wages. There are several other new Roth provisions in SECURE 2.0 involving Roth SEP and SIMPLE contributions, Roth 401(k) employer contributions, and 529 plan-to-Roth IRA rollovers. But the catch-up rule is the only mandatory change.
Some of the country’s largest plan recordkeepers and retirement plan lobbying organizations had requested a postponement of the January 1, 2024 effective date, citing serious administrative problems with getting the rule into place on such short notice. The effect of the delay until January 1, 2026 is that until then no employees will be required to make catch-up contributions on a Roth basis and plans that don’t already offer Roth contributions won’t need to offer them.
The Notice also addresses a mistake Congress made when it drafted the mandatory catch-up provision in SECURE 2.0. Congress inadvertently deleted a part of the tax code with the result that no employees (high-paid or not) would be able to make any catch-up contributions (pre-tax or Roth) starting in 2024. This was an obvious mistake, and the IRS says it will turn a blind eye to it.
Notice 2023-62 also says that high-paid self-employed persons who have self-employment income instead of “wages” won’t be required to make catch-up contributions on a Roth basis – even if their income is above the dollar threshold. This was unclear under SECURE 2.0.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.