On August 25, 2023, the Internal Revenue Service issued guidance extending the effective date of a controversial provision of the SECURE 2.0 Act of 2022 (“Secure Act 2.0”) for an additional two years.
Section 603 of Secure Act 2.0 requires that for certain highly compensated employees, catch-up contributions to a 401(k) or 403(b) plan must be made in the form of after-tax Roth contributions rather than pre-tax deferrals. This provision was originally set to go into effect starting in 2024.
In IRS Notice 2023-62, the IRS announced a two-year delay in the effective date of these changes to the catch-up contribution rules. Plan sponsors now have until the first plan year beginning after December 31, 2025 to bring plans into compliance with the new rules.
Implementing these Roth changes may prove challenging, particularly for plans that do not include Roth features. In order to continue to accept catch-up contributions by employees with prior-year compensation above $145,000 (as indexed), plan documents, administrative procedures, and payroll systems will need to be revised to provide that catch-up contributions can be made only in the form of Roth contributions.
The recently announced delay in the effective date of these requirements provides welcome relief for plan sponsors and service providers who may need to overhaul systems in order to properly administer the new catch-up contribution rules.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.