QUESTION: We have heard that the SECURE 2.0 Act will require us to treat certain catch-up contributions under our 401(k) plan as Roth contributions. Can you tell us more about these mandatory Roth contributions?
ANSWER: As you know, if a 401(k) plan permits it, participants who are age 50 or older can make additional elective deferrals, known as “catch-up” contributions. Under the SECURE 2.0 Act, catch-up contributions made beginning in 2026 by participants with income that exceeded $145,000 (as indexed) in the prior calendar year must be made to a designated Roth contribution account and cannot be made on a pretax basis. Amounts contributed to a designated Roth account are includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free. The SECURE 2.0 Act also provides that, if a plan allows eligible participants subject to this mandatory Roth tax treatment to make catch-up contributions, then all eligible participants must be permitted to make catch-up contributions as designated Roth contributions, even if they are not subject to the mandatory Roth tax treatment rule (e.g., a participant making $100,000). This means that a plan that currently does not offer participants a chance to elect designated Roth contributions soon may be required to, if catch-up-eligible participants will have compensation that exceeds the threshold.
This requirement was originally due to take effect in 2024; however, due to concerns that plans and service providers could not change their administrative and recordkeeping procedures in time to comply, the IRS provided for a two-year administrative transition period until 2026. During this transition period, 401(k) plans may continue to allow all participants (including those with incomes above the threshold) to make pre-tax catch-up contributions and will be treated as satisfying the new requirements even if they do not provide for designated Roth contributions. For more information, see EBIA’s 401(k) Plans manual at Sections VIII.E (“Roth Contributions”), VIII.F.8 (“Catch-Up Contributions Made by Certain Higher-Income Participants”), and XIV.J.1.c (“Qualified Distributions of Designated Roth Contributions”).
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