In Notice 2023-62, the IRS and Treasury clarified that many catch-up contributions for 2024-2025 will not have to be Roth contributions for taxpayers earning $145,00/year or more.

On August 25, Treasury and the Internal Revenue Service (IRS) released guidance on the SECURE 2.0 Roth catch-up contribution effective date. Notice 2023-62 states that catch-up contributions in 2024 and 2025, whether they are Roth or traditional, will be permissible. In other words, Treasury is allowing for a two-year delay in the SECURE 2.0 provision (set by statute to take effect as of January 1, 2024) that requires those with $145,000 or more in wage income make their catch-up contributions on a Roth basis. The guidance makes clear that if a plan does not provide for a Roth contribution and cannot be amended in a timely way, or if wage income cannot be determined on a timely basis and thus an employer cannot identify who among their workers would be subject to the Roth catch-up contribution rule, the plan can still accept catch-up contributions (whether Roth or traditional) up until January 1, 2026.

This result is a clear win for NAIFA and its allies in the retirement planning community. The collective sigh of relief (not to mention fist-pumps in jubilation) characterized the retirement savings community’s reception of the Notice. The lobbying for this transition relief had been intense, and the success of the effort was welcomed by the many plans and plan participants who would have been adversely impacted without Notice 2023-62.

However, Notice 2023-62 does not answer all the issues related to SECURE 2.0’s catch-up contribution rules. For example, there is a question—on which Treasury/IRS has requested comments—as to whether contributions made from earnings subject to SECA (self-employed income) rather than to FICA (wage income) are subject to the SECURE 2.0 rule that those with wages of $145,000 or more must make any retirement plan catch-up contributions on a Roth basis. (The Roth rule requires after-tax contributions but allows for tax-free distributions.)

Notice 2023-62 resolves the large issue of whether those participants in plans who earn $145,000 or more in wages can make catch-up contributions in 2024 and 2025. Such contributions will be treated as permissible, whether they are Roth or traditional (pre-tax) in nature, until 2026.

Prospects: Both Treasury/IRS and relevant Congressional tax writers plan to clarify the catch-up contribution rule issues well before 2026. But there is as yet no specific date by which the resolution of still-open issues will be clarified, either by regulation or by legislation.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.