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Corporate & Institutional

IRS Guidance on Roth Catch-Up Contributions Provides Welcome Relief with Notice 2023-62

August 29, 2023

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SECURE 2.0 amended the Code to include a mandatory Roth catch-up contribution requirement for certain higher income participants beginning January 1, 2024. In response to widespread plan sponsor concerns that payroll and plan recordkeeping systems were not yet ready to implement the new rule, on Friday, August 25th, the IRS¹ announced an administrative transition period of two years. This extends the period allowed to implement the mandatory Roth catch-up contribution requirement to January 1 2026.

Section 603 of the SECURE 2.0 legislation enacted in 2022 amended Code section 414(v)(7) requiring that any catch-up contributions made by participants with more than $145,000 in prior-year FICA wages be made on a Roth basis, beginning January 1, 2024. Moreover, any plan offering catch-up contributions with participants affected by the new requirement would be required to offer all catch-up eligible participants (i.e., persons age 50 and older) the ability to make catch-up contributions on a Roth basis.

The new requirements of section 603 were fraught with complexity and exceedingly challenging to implement. Chief among the issues confronting plan sponsors was the need to re-program payroll systems to track the $145,000 earnings threshold, which differs from threshold used to determine highly compensated employee status, and to transmit to plan recordkeepers in the shore timeframe allowed by the legislation.

Notice 2023-622 provides much needed breathing room by providing a two year “administrative transition period” that ends on January 1, 2026. During the transition period, catch-up contributions made by affected participants (i.e., persons who earned more than $145,000 in prior year FICA wages) will be treated as compliant, even though not made on a Roth basis. Also, plans that do not currently offer a Roth contribution option will be treated as compliant without the need to add a Roth feature at this time.

The Notice signals the Service’s intention of issuing additional future guidance on several related issues including the treatment of participants who have no prior-year FICA wages from their current employer, and the application of the rule to plans maintained by more than one employer. A copy of Notice 2023-62 is available in the attached link, if you wish to read more.

An experienced retirement plan advisor can help you with questions you may have on this guidance. Connect with Wilmington Trust to learn more.

[1] https://www.irs.gov/newsroom/irs-announces-administrative-transition-period-for-new-roth-catch-up-requirement-catch-up-contributions-still-permitted-after-2023

[2] https://www.irs.gov/pub/irs-drop/n-23-62.pdf

This article is intended to provide general information only and is not intended to provide specific investment, legal, tax, or accounting advice for any individual. Before acting on any information included in this article, you should consult with your professional adviser or attorney. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, or the opinions of professionals in other business areas of Wilmington Trust or M&T Bank. M&T Bank and Wilmington Trust have established information barriers between their various business groups.

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