TWO-YEAR GRACE PERIOD IN IMPLEMENTING CATCH-UP CONTRIBUTIONS AS ROTH
On AUGUST 25TH, 2023 The Internal Revenue Service announced a two- year transition period with respect to the requirement that catch-up contributions made by certain 401(k) plan participants be designated as ROTH contributions. The specifics of the transition period are:
- The change under the SECURE 2.0 Act of 2022 requires catch-up contributions made by participants whose FICA wages exceed $145,000 (as indexed) be treated as ROTH contributions. This change was to be effective for tax years beginning after December 31, 2023. However, now the first two taxable years beginning after December 31, 2023, will be recognized as an administrative transition period delaying the requirement to recognize catch-up contributions as ROTH contributions beginning with the taxable year after December 31, 2025.
- The Plan Administrator, however, has the right to treat participants’ catch-up contributions as designated ROTH contributions, even if participants do not make such elections.
Notice 2023-62 issued on August 25th is much more comprehensive. The above highlights the areas we believe have an affect on the types of retirement plans we service.