On August 25, 2023, the IRS released Notice 2023-62, which provides transition relief for implementation of the new Roth catch-up contribution requirement under section 603 of the SECURE 2.0 Act.
Under present rules, 401(k), 403(b) and governmental 457(b) plans can allow participants who are age 50 or older by year end to make catch-up contributions, which are additional elective deferrals that exceed the otherwise applicable elective deferral limit. Currently, as permitted by the plan, catch-up contributions can be made either on a pre-tax basis or as designated Roth contributions.
The SECURE 2.0 Act provision requires that, effective in 2024, any catch-up contributions made by plan participants with prior year Social Security wages exceeding $145,000 must be designated as after-tax Roth contributions. However, industry groups voiced practical concerns regarding the ability to conform plan operations to satisfy the new requirements by the 2024 deadline.
Notice 2023-62 and related guidance, IR-2023-155, respond to these concerns by announcing a two-year administrative transition period for implementation of the new requirement. Accordingly, defined contribution plans will not be required to designate catch-up contributions made by higher income participants as Roth contributions until 2026. The IRS also clarified that plan participants who are age 50 and over can continue to make catch‑up contributions after 2023, regardless of income.
Employers that sponsor defined contribution plans should be aware of this transition relief and consult with their advisors for further information. The IRS intends to issue future guidance and invites public comments on the matters discussed in Notice 2023-62. Comments must be submitted in writing on or before October 24, 2023.
IR-2023-155 »
Notice 2023-62 »
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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