More on the Roth Catch-Up Contributions Delay
By Ian Berger, JD
Follow Us on X: @theslottreport
The August 28, 2023 Slott Report summarized IRS Notice 2023-62, where the IRS delayed the effective date of the SECURE 2.0 rule requiring catch-up contributions by higher-paid older employees to be made on a Roth basis. The postponement until January 1, 2026 was in response to persistent complaints by recordkeepers and employer plan lobbyists that it would be impossible to have the new rule in place by its original January 1, 2024 effective date. The delay means that until 2026, plans can continue to accept pre-tax catch-up contributions from all employees (including high-paid).
The Roth catch-up mandate raised several questions that the IRS preliminarily addressed in Notice 2023-62:
- The Roth mandate only applies to employees with “wages” from the employer in the preceding year that exceeds a dollar threshold. (That threshold would have been $145,000 in 2023 wages had the rule become effective in 2024.) But self-employed persons have self-employment income, not wages. If a self-employed’ s income exceeds the dollar limit in the prior year, is he required to make catch-ups on a Roth basis? The IRS said no. Only high-paid workers with actual “wages” are subject to the Roth rule. The IRS also confirmed that “wages” means wages subject to FICA; that is, amounts reported on Box 3 (not Box 1) of W-2.
- What if an employee subject to the Roth catch-up requirement makes an election to make catch-ups on a pre-tax basis? The IRS said plans can automatically disregard that election and treat it as an election to make catch-ups on a Roth basis.
- Sometimes, a 401(k) plan is sponsored by more than one employer. If an employee has wages in the preceding year from more than one sponsoring employer, are her wages aggregated for purposes of the dollar threshold? The IRS said no. For example, assume Companies A and B both sponsor the same 401(k) plan, and the Roth mandate in 2026 applies to someone with 2025 wages in excess of $150,000. Sandy changed jobs from Company A to Company B in 2025 and had $100,000 of wages from Company A and $125,000 wages from Company B. Sandy, a Company B employee in 2026, isn’t subject to the Roth mandate because only her 2025 Company B wages ($125,000) – not the combined $225,000 – are taken into account.
- What will happen to a plan in 2026 that doesn’t already offer Roth contributions and doesn’t want to add them? (After all, 401(k) Roth contributions are optional.) Can the plan continue not to offer Roth contributions and limit catch-up contributions to only lower-paid employees (which would be pre-tax)? Or, must the plan eliminate catch-ups for all employees? Here, the IRS punted and asked for comments from the public before deciding.
We’ll let you know when the IRS issues official guidance on these issues.
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.