Industry News

On August 25, 2023, the Internal Revenue Service (IRS) released guidance under Notice 2023-62 announcing a transition period for the implementation of the new Roth “catch-up” contribution requirement of the SECURE 2.0 Act of 2022 (SECURE 2.0). Specifically, Notice 2023-62 provides relief regarding the SECURE 2.0 requirement that age 50 catch-up contributions for higher income participants in Section 401(k), 403(b), and governmental 457(b) plans be designated as Roth contributions (referred to as the “mandatory Roth catch-up” provision). 

During the past year, public and private sector plan communities, including plan sponsors and retirement plan administrators, have expressed concerns related to the IRS implementing the mandatory Roth catch-up provisions by January 1, 2024, which was the original effective date in the SECURE 2.0 Act. Notice 2023-62 helps to relieve the serious concerns that no catch-up contributions were allowed beginning in 2024 because of a drafting glitch. It also provides some of the requested relief during a two-year “administrative transition period.” Notice 2023-62 extends compliance for the requirement for a two-year transition period until the first taxable year after December 31, 2025 (i.e., January 1, 2026). 

Under Section 603(c) of SECURE 2.0, the provisions of Section 603 apply to taxable years beginning after December 31, 2023. However, the IRS noted, the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period. Section 603 of SECURE 2.0 requires that catch-ups from participants in 401(k), 403(b) or governmental 457(b) plans earning $145,000 or more (indexed after 2024) be designated as Roth contributions. 

According to the IRS, “The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement. The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.”

Notice 2023-62 provides relief and guidance to plan sponsors, providers and participants by allowing time to implement the mandatory Roth catch-up provisions without triggering any plan qualification issues. Further, it minimizes the potential disruption for affected participants. The relief will provide critical time needed to implement the requirement and avoid the unintended consequences that could have led to a negative impact on retirement savings.

Under the Notice 2023-62 guidance, catch-up contributions will be treated as satisfying requirements of Section 414(v)(7)(A) through December 31, 2025, even if the contributions are not designated as Roth contributions. In addition, a plan that does not provide a designated Roth contribution will be treated as satisfying the requirements of Section 404(v)(7)(B).  

The IRS indicated that it intends to issue future guidance on the Roth catch-up requirement that will be released to facilitate ongoing implementation efforts. 

Comments to the IRS on Notice 2023-62 are due by October 24, 2023. 

IRS Notice 2023-62 is available here.