SECURE Act 2.0

Roth Contributions

This feature article focuses on the catch up contribution requirement beginning January 1, 2024.  Check later newsletter issues for discussion on the “super catch up” for those ages 60 to 63, effective beginning January 1, 2025.

Prior to the enactment of SECURE Act 2.0, an employee who was or will be age 50 or greater in that current tax year could defer additional monies to their 401k plan.  Those additional contributions are called “catch up”.  This is a great way for older employees to save more for their retirement.

The catch up contribution limits change yearly along with the 401k limits.  For 2023, the catch up contribution limit is $7,500.  An individual can select whether those dollars will be deferred on a pre-tax basis, a “Roth” (or after-tax) basis, or a combination.  SECURE Act 2.0 changed that effective January 1, 2024. 

The new requirement states that anyone who earned $145,000 or more in 2023 (earnings defined as subject to FICA) must contribute his/her catch up deferrals as Roth (meaning, on an after-tax basis).  Until guidance is issued, employers and service providers are worried about how to implement this requirement.  Many special interest groups have requested priority guidance, transition relief and delayed effective dates to provide employers sufficient time to work with their payroll and recordkeeping providers to implement this change.  We will keep you posted on any changes or guidance to this requirement.

Issues of concern include:

  • Can an employer require all employees, regardless of prior year FICA earnings, to make their catch up contributions as Roth for ease of administration?

  • Can an employer disallow employees earning $145,000 or greater in the prior year from making a catch up contribution in the current year?  

  • For payroll vendors that do not differentiate between deferrals and catch up deferrals, how will the employer code Roth deferrals and Roth catch up?

  • Can employees who make catch up contributions continue to amortize the total deferral over the number of pay periods for that year, or will regular deferrals be processed first, and then catch up

  • What happens if the employer cannot identify by January 1st those individuals whose FICA wages were $145,000 or greater in 2023?

  • Are self-employed individuals included in this regulation?

  • Will the IRS prepare a notice or disclosure that can be provided to the affected employees regarding their catch up contribution?  

  • What if my plan doesn’t offer a Roth feature currently?  Must I amend the plan?

  • Can an employer offer Roth as a catch up only if it wishes?

There are some steps you can take now to prepare for this upcoming change.  First, be sure your plan offers a Roth feature.  Second, develop a list of who may be in the $145,000 and over group by year end.  Third, watch for updates from JM Pension.  Finally, we are here to help.  Don’t hesitate to call if you have any questions or concerns now.  

Stay up to date on the SECURE Act 2.0. The provisions of the new SECURE Act 2.0 are numerous. Fortunately, the majority are optional; meaning it is up to you to determine if it is something you’d like to include in your plan.

See the other articles in our SECURE Act 2.0 series:
Secure Act 2.0 Important Changes - Now and Later (Q1 2023 Newsletter Feature Story)
Secure Act 2.0 Key Considerations (Q2 2023 Newsletter Feature Story)