Two-year reprieve granted from Roth catch-up requirement

Higher-income participants in Sec. 401(k) and similar retirement plans have been given a two-year delay before the new requirement that they must designate their catch-up contributions to those plans as after-tax contributions to Roth IRAs, the IRS announced in Notice 2023-62.

In the notice, issued Friday, the IRS provided guidance under Section 603 of the SECURE 2.0 Act, enacted as part of the Consolidated Appropriations Act, 2023, P.L. 117-328. The provision requires that, starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a Sec. 401(k), 403(b), or governmental 457(b) plan and whose prior-year Social Security wages were over $145,000.

The IRS notice announces an “administrative transition period” delaying that requirement’s applicability until 2026. The Service stated the administrative transition period is designed to facilitate an orderly transition for compliance with the Roth catch-up contribution requirement.

The IRS also cleared up an issue in the language in SECURE 2.0 that had caused confusion for some taxpayers, stating in the notice that the SECURE 2.0 act does not prohibit plans from permitting catch-up contributions and, thus, plan participants who are age 50 and over can still make catch‑up contributions after 2023, regardless of income.

The IRS said it plans to provide further guidance on the implementation of Section 603 of the SECURE 2.0 Act and provided three examples of positions it expects to include in the guidance. It also is seeking comments and suggestions on those positions, along with other issues related to Section 603.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.