Important news and information.

IRS Announces Transition Period for Mandatory Roth Catch Up Contributions

On August 25, 2023, the Internal Revenue Service announced in Notice 2023-62 that higher-income participants in 401(k) and similar retirement plans have been given a two-year delay on the new requirement that they must designate their catch-up contributions to those plans as after-tax Roth contributions (as opposed to traditional pre-tax contributions).

In the Notice, the IRS provided guidance under Section 603 of the SECURE 2.0 Act. That particular provision requires that starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a 401(k), 403(b), or governmental 457(b) plan and whose prior-year Social Security wages were over $145,000.

The Notice announces an "administrative transition period" delaying that requirement until 2026. The IRS 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 significant confusion for taxpayers, reassuring them in the Notice that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions and, therefore, plan participants who are age 50 and over can still make catch up contributions after 2023, regardless of income.

Finally, the Notice promises that further guidance on the implementation of Roth catch-up contributions will be provided by the IRS in the future. We’ll let you know when the IRS publishes additional guidance and how it will affect you. In the meantime, please contact your Sisterson representative with any questions.
Lisa D. Edwards
Manager, Employee Benefit Plan Services


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