The Internal Revenue Service (IRS) has granted a two-year delay in the Roth catch-up requirements. This decision brings relief to retirement plan participants and sponsors who were facing looming compliance deadlines. Let's delve into the details of this breaking news.
The Original Rule
As part of SECURE 2.0, employees age 50 or older with W-2 wages in excess of $145,000 in the prior year who were looking to maximize their retirement savings with catch-up contributions were required to treat their catch-up contributions as Roth contributions beginning in 2024. If the employee earns less than $145,000, they can choose either pre-tax or Roth contribution type.
Delay in Effective Date
Under the new guidance (Notice 2023-62), the IRS grants a two-year delay in the provision's effective date that mandates catch-up contributions must be Roth for those earning more than $145,000 in the prior year. Catch-up contributions can now be made on a pre-tax basis through 2025, regardless of income.
The IRS has acknowledged the need for an administrative transition period to allow retirement plans and sponsors to comply with the new policy. The notice announced a two-year transition period for the requirement. Under section 603(c) of the SECURE 2.0 Act, the provisions of section 603 apply to taxable years beginning after December 31, 2023. The IRS notes that the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period.
It also addressed the technical error that would have eliminated all catch-up contributions beginning in 2024. Under the notice, catch-up contributions can continue to be made after 2023.
Impact on Retirement Planning
This delay comes after a massive amount of retirement industry feedback that implementing the change for all defined contribution plan sponsors would be administratively challenging to get done by the original deadline. The extension of the deadline for Roth catch-up contributions has been regarded as a positive step towards easing the burden on individuals and plan sponsors.
Adcock Financial Group
H. Brian Adcock
311 W. Fletcher Avenue
Tampa, FL 33612
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This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
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