On August 25, 2023, the IRS issued guidance delaying until January 1, 2026 the SECURE 2.0 requirement that any age 50 catch-up contributions by an employee with prior-year compensation over $145,000 be made on a Roth basis, rather than a pre-tax basis. This requirement was previously set to take effect as of January 1, 2024. The guidance also clarifies that participants who are age 50 or older can continue making catch-up contributions after 2023, regardless of income (in response to a technical drafting error in SECURE 2.0 that could have been read to disallow such catch-up contributions).
The IRS also stated that it anticipates issuing future guidance on the following points:
- Based on statutory language, the Roth catch-up requirement only applies based on prior-year compensation that is FICA wages, not income from self-employment or state/local government income exempt from FICA. Under this approach, partners and other self-employed individuals could continue to make catch-up contributions on a pre-tax basis after 2025.
- A plan may treat a pre-tax catch-up election for a participant subject to the Roth catch-up rule as though it were a Roth catch-up election, without the need to obtain an updated election from the participant.
- For a participant in a multiple employer or multiemployer plan with compensation from two or more participating employers, the determination of whether the Roth catch-up rule applies would be made on an employer-by-employer basis. Compensation from multiple participating employers would not be combined.
While these three points would be helpful to impacted plan sponsors, they are not yet the IRS's formal position.
