A brief review of the Roth catch-up contribution rules included in Secure Act 2.0:

SECURE Act 2.0 included two aspects collectively referred to as the “Roth catch-up contribution rule”, impacting those over age 50 who make catch-up contributions in their 401(k) plans starting in 2024.

• All catch-up contributions made by employees whose prior year wages exceeded $145,000 (inflation-adjusted) MUST be made as Roth contributions.
• If a retirement plan allows catch-up Roth contributions to be made by these high earners, it must also allow all other participants to choose either Roth or standard contributions.

**Based on the current verbiage of the rule, if a plan does not offer a Roth option, no catch-up contributions can be made by any participant in the plan (even if they are not a high earner!!).

Here is (part of) the most recent IRS update:

Due to issues with the current wording and complaints from hundreds of companies that a 2024 deadline would be difficult, the IRS’ Transition Relief Notice 2023-62 delays the implementation for two years, so as of now the rule will not be enforced until January 1, 2026. The IRS has indicated that it intends to make these updates to the rule before it becomes enforceable in 2026:

• The rule does not apply to participants who do not have any wages as defined for FICA purposes, i.e., a partner with an ownership interest or a self-employed individual.
• If a high-earning employee had agreed to participate in standard catch-up contributions prior to 2026, the employer can treat that as consent to continue contributing on a Roth basis once this new rule is implemented.
• Wages are not treated in aggregate across separate employers, i.e., an employee making two $100,000 salaries with two separate employers would not be subject to this new rule.

For a deeper dive into these changes check out this Grant Thornton article

–  Your HoyleCohen Team

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