A recent announcement from the IRS (IR-2023-62) modifies and clarifies Roth IRA catch-up payment requirements for contributors who are aged 50 or older.  IR-2023-62 delayed mandatory Roth IRA catch-up payments for high income taxpayers above the age of 50 earning more than $145,000 until 2026.

Recent legislation (SECURE 2.0 Act, also known as the Consolidated Appropriations Act of 2023) had required catch-up payments or contributions to be made to a Roth IRA using “post tax” funding beginning in 2024. In effect, IR-2023-62 provides Roth IRA plan participants to continue under the old rules prior to the SECURE 2.0 Act through December 31, 2025.

Existing IRA and 401k Catch Up Provisions

Presently, once a taxpayer reaches the age of 50 they are able to make “catch-up contributions” to a Roth IRA, 401(k), Roth 401(k), 403(b) or other qualifying retirement savings plans available through their employer.  The annual catch-up contribution may be up to $1,000 for a traditional or Roth IRA (which increased the total potential contribution to these IRAs in 2023 to $7,500).

Those who contribute to any 401(k), Roth 401(k), 403(b) or other qualifying savings plan may contribute a catch-up payment of $7,500 per year in addition to normal pre-tax contributions.

Associated Modifications to SECURE 2.0 (Consolidated Appropriations Act of 2023)

As the IRS modifies and clarifies Roth IRA plan catch-up payment requirements and taxation we should begin with a review of what was passed under the original SECURE 2.0 Act of 2023.  This sweeping Act of Congress established a starting date of January 1, 2024 for new regulations that would have required those above the age of 50 who earn $145,000 or more to make catch-up contributions to a Roth IRA using post-tax income. (Those earning less than $145,000 will be exempt from this requirement).

So what has changed?  Basically, qualifying taxpayers may continue under the old, pre-SECURE 2.0 Act, catch-up contribution regulations until January 1, 2026.  This allows plan administrators additional time to implement the new Roth IRA Plan catch-up payment requirements.

The recent IRS Notice (IR-2023-62) also announced the IRS’ intention to issues future guidance on the implementation of Roth IRA catch-up payment requirements for high income taxpayers.  There are still questions to be clarified such as those regarding plan participants who did not have FICA wages, pre-tax versus post-tax guidelines and unique situations where a qualifying taxpayer may experience income from more than one “participating employer.”