IRS Provides Transition Relief From Section 603 Catch-up Contribution Change

The IRS announced a two-year administrative transition period for the new Roth catch-up requirement. Section 603 of the SECURE 2.0 Act requires certain catch-up contributions to an employer retirement plan to be designated as Roth (after-tax) contributions after December 31, 2023. (IR 2023-155; Notice 2023-62, 2023-37 IRB)

Note. The new catch-up contribution rule applies to employees who participate in an employer or governmental retirement plan and whose prior-year Social Security wages exceeded $145,000.

According to the IRS, the administrative transition period, which is detailed in Notice 2023-62, will help to “facilitate an orderly transition for compliance with that requirement.”

Note. The IRS appears to be responding to concerns from retirement plan sponsors who asked for relief from the requirements in section 603 of the SECURE 2.0 Act, citing “numerous administrative hurdles.” See Retirement Plan Sponsors Request Transition Relief From Section 603 Catch-up Contribution Change (08/08/2023).

During the transition period, an employer plan won’t fail to meet any requirement of the Code solely because the plan permits an eligible participant to make catch‑up contributions, according to the Notice.

In addition, for tax years beginning after December 31, 2023, and before January 1, 2026, a plan may permit participants to make elective deferrals that exceed the cap ($22,500 for 2023) when those excess contributions satisfy the catch-up contribution requirements (even if the contributions are not designated as Roth contributions). Additionally, a plan that doesn’t provide for designated Roth contributions will have satisfied the requirements of Code Sec. 414(v)(7)(B).

According to the Notice, the IRS continues to work on implementing the Secure 2.0 Act and intends to issue further guidance. The IRS requests comments on Notice 2023-62 and section 603 of the Secure 2.0 Act. Instructions on how to provide comments are provided in the Notice.

For more information on mandatory Roth treatment of catch-up contributions for employees whose wages exceed $145,000 in tax years beginning after December 31, 2023, see Checkpoint’s Federal Tax Coordinator ¶H-9249.2.