The IRS on Aug. 25 announced a two-year moratorium on enforcing a provision of the SECURE 2.0 Act of 2022 that requires catch-up contributions for defined contribution participants to be Roth contributions if they earn $145,000 or more per year.
The law set a deadline of Jan. 1 for the new provision to take effect, prompting retirement industry members to seek a delay from the Treasury Department and Internal Revenue Service.
Currently, participants who are 50 and older can have their catch-up provisions subject to the traditional plan funded with pretax money or the Roth plan funded with after-tax money depending on a sponsor’s rules.
In a guidance document issued Aug. 25, the IRS said there would be a two-year transition period for sponsors to implement the law.
“The first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period with respect to the requirement under (the IRS code) that catch-up contributions made on behalf of certain eligible participants be designated as Roth contributions, the IRS document said.
“Those catch-up contributions will be treated as satisfying the requirements of (the IRS code) even if the contributions are not designated as Roth contributions, and a plan that does not provide for designated Roth contributions will be treated as satisfying the requirements” of the IRS code.
The 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 IRS said in a news release Aug. 25. “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.”
The IRS document said the Treasury Department and the IRS “plan to issue future guidance to help taxpayers.” They are inviting public comments about the Roth catch-up provision — Section 603 of the SECURE 2.0 Act. The comments should be submitted in writing or electronically by Oct. 24.
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