IRS Provides Two-Year Transition Period for SECURE 2.0 Roth Catch-Up Contribution Requirement

I.R.S. Notice 2023-62, 2023-37 I.R.B. 817 (Sept. 11, 2023)                                               Originally posted at https://info.wealthcounsel.com/blog/current-developments-september-2023

Many employer retirement plans offer catch-up contributions up to a maximum of $7,500 (subject to adjustments for cost-of-living increases) to participants who will reach age fifty by the end of the relevant year. Section 603 of the 2022 SECURE 2.0 Act requires catch-up contributions made by participants whose prior-year Social Security wages exceed $145,000 (subject to adjustment) to certain employer retirement plans to be designated as Roth (i.e., after-tax) contributions for tax years beginning January 1, 2024. 

On August 25, 2023, the IRS issued Notice 2023-62 announcing a two-year administrative transition period postponing the implementation of the catch-up requirement under section 603 until January 1, 2026, to facilitate an orderly transition and compliance. During the transition period, retirement plans will not violate section 603 of the SECURE 2.0 Act if all participants, including high-earning participants, make catch-up contributions on a pre-tax basis. The notice also clarifies that participants who are age fifty and older are permitted to continue to make catch-up contributions after 2023, despite the inadvertent deletion of certain language in the SECURE 2.0 Act that some believed would prohibit plans from permitting eligible participants to make those contributions.

Takeaways: The transition period gives plan sponsors additional time to determine whether to offer a Roth contribution feature to their retirement plans and to implement the requirement that catch-up contributions for higher-income participants be designated as after-tax Roth contributions. Notice 2023-62 also indicated that the IRS expects to issue further guidance to implement the SECURE 2.0 Act.