Daily News Portal

IRS Extends Deadline for Catch-Up Contributions in New Secure 2.0 Guidance | ThinkAdvisor

Catch-up contributions made by wealthy 401(k) participants must be designated as after-tax Roth contributions by 2026.

The Internal Revenue Service said Friday that it has granted an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher‑income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions.

The IRS also clarified in Notice 2023-62 that plan participants who are age 50 and older can continue to make catch‑up contributions after 2023, regardless of income.

The notice provides initial guidance for Section 603 of the Secure 2.0 Act, enacted in December 2022.

“Under that provision, 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 exceeded $145,000,” the IRS states.

The administrative transition period, the agency explained, “will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement.”

The IRS notice also clarifies that the SECURE 2.0 Act “does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.”

See: Beware the Pitfalls of Secure 2.0: Wade Pfau

Mark Iwry — a former senior advisor to the U.S. Secretary of the Treasury for national retirement and health care policy who’s now a nonresident senior fellow at the Brookings Institution in Washington — congratulated the IRS and Treasury “for their timely and practical guidance.”

The retirement community, Iwry told ThinkAdvisor, “should appreciate that, in addition to providing a two-year transition to comply with the required ‘Rothification’ of catch-up contributions, the guidance provides reassurance on the availability of catch-up contributions generally.

“Specifically, it confirms that catch-ups are permitted for everyone in 2024 as well as in all other years despite technical statutory language that had raised uncertainty about catch-up availability in 2024,” Iwry explained.

The Treasury Department and the IRS plan to issue future guidance to help taxpayers, and the notice describes several positions that are expected to be included.

The IRS says it welcomes public comment on the matters discussed in the notice and suggestions for the future.

Related: Ed Slott: The IRA Conversation Advisors and Clients Must Have Now

Read More:IRS Extends Deadline for Catch-Up Contributions in New Secure 2.0 Guidance | ThinkAdvisor