More time to catch up: IRS announces two year delay of Roth catch-up requirement
August 28, 2023
More time to catch up: IRS announces two year delay of Roth catch-up requirementAugust 28, 2023 The IRS has announced a two-year “administrative transition period” for plan sponsors to implement the SECURE 2.0 Act provision requiring higher-income employees to make retirement plan catch-up contributions as Roth contributions. This relief, contained in Notice 2023-62 and issued on August 25, 2023 effectively means that for 2024 and 2025 plans can continue to allow pre-tax catch-up contributions regardless of the amount of a participant’s wages. The IRS also clarified that catch-up contributions will be allowed in 2024 and later years, notwithstanding language in SECURE 2.0 that could be read as eliminating all catch-up contributions. Background Participants in 401(k), 403(b), and governmental 457(b) plans are subject to an annual dollar limit on employee contributions – $22,500 in 2023. In addition, participants who will be at least age 50 at any time during an applicable year can make a “catch-up contribution” up to a specified amount – $7,500 in 2023. These amounts are adjusted for inflation from time to time. SECURE 2.0 includes a revenue-raising provision that requires participants with wages more than $145,000 (subject to indexing) in the immediately preceding calendar year to make catch-up contributions as Roth contributions, beginning in 2024. Plan sponsors reported a number of implementation challenges with this requirement, including the need to coordinate payroll and recordkeeping systems, difficulties in determining the affected group during the first several pay periods of the year, challenges administering separate catch-up elections, and a host of other issues. IRS Relief and Guidance Notice 2023-62 provides that the first two taxable years beginning after December 31, 2023 will be treated as an administrative transition period with respect to the Roth catch-up requirement. The Notice states that the following will apply until taxable years beginning after December 31, 2025:
Said differently, plans do not need to implement the SECURE 2.0 Roth catch-up requirement for 2024 and 2025, and plans that do not currently allow for Roth contributions do not need to make any changes for 2024 and 2025. The Notice also clarifies that, notwithstanding SECURE 2.0’s apparently inadvertent elimination of language in section 402(g) of the Internal Revenue Code (Code) that referenced catch-up contributions, catch-up contributions will continue to be allowed in 2024 and later years.
The IRS requests comments on issues for which guidance is needed on the SECURE 2.0 Roth catch-up requirement. In particular, the IRS requests comments on whether plans should be permitted to exclude employees with wages over the Roth catch-up threshold from making any catch-up contributions at all, thereby avoiding many of the administrative complications of the new requirement. Adam B. Cohen | Email | +1 202 383 0167 *Offi E. Ekah, also with Eversheds Sutherland (US) LLP in Washington, DC, is not yet admitted to practice in Washington, DC. If you have any questions about this Legal Alert, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work. Key contacts
Adam B. Cohen Partner Washington, DC, United States Carol T. McClarnon Partner Washington, DC, United States W. Mark Smith Of Counsel Washington, DC, United States Michael A. Hepburn Partner Washington, DC, United States Paul R. Lang Of Counsel Washington, DC, United States Brenna M. Clark Partner Atlanta, United States Brittany Edwards-Franklin Counsel Atlanta, United States Laura Taylor Partner Washington, DC, United States Deepa S. Menon Counsel Washington, DC, United States Bonnie R. Burke Senior Attorney Atlanta, United States Caitlin G. Naylor Senior Associate Atlanta, United States Catherine F. Beaver Associate Washington, DC, United States Latest Insights
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