AICPA: Guidance needed on catch-up contributions under Roth mandate

The AICPA requested additional guidance from Treasury and the IRS on catch-up contributions that are designated as Roth contributions in Section 603 of the SECURE 2.0 Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328).

The AICPA made the request in a letter dated July 1 and sent to Treasury and the IRS regarding proposed regulations (REG-101268-24) issued in January, which included guidance on statutory changes in Section 603. Under those changes, known as the Roth mandate, catch-up contributions made by certain catch-up-eligible participants must be designated as Roth contributions.

The Roth mandate affects certain employees who participate in employer-sponsored retirement plans who are eligible to make catch-up contributions and whose wages meet a specific income threshold.

“Post-SECURE 2.0, employers and plan administrators will need clear guidance to ensure compliance of the law regarding Roth-mandated catch-up contributions,” said Kristin Esposito, director–Tax Policy & Advocacy at the AICPA. “Our recommendations to the regulations proposed by Treasury and the IRS, if adopted, will make it easier for plan administrators to implement the law.”

Safe harbor for Form W-2 reliance

The AICPA recommended that the IRS create a safe harbor that allows plan administrators to rely on Form W-2, Wage and Tax Statement, wage information when determining if employees exceed the catch-up wage threshold for the purposes of the Roth mandate.

If the safe harbor is not adopted, the AICPA recommended that clear guidance be issued related to scenarios involving predecessor employers and other third-party arrangements. That includes relief for noncompliance that may result and otherwise be unavoidable in reasonable administration of plans using Form W-2 information to determine which employees must follow the Roth mandate, the AICPA said.

Application to disregarded entities

A disregarded entity with employees generally is required to file employment tax returns using its own employer identification number and is treated as an employer, regardless of its disregarded status for income tax purposes. The AICPA recommended that the IRS state whether a disregarded entity is treated as a separate “employer sponsoring the plan” for purposes of Prop. Regs. Secs. 1.414(v)-2(b)(3) and (4).

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