Catch-up contributions by wealthy 401(k) participants must be designated as after-tax Roth contributions by 2026.
The Internal Revenue Service on Friday granted an administrative transition period to extend the new requirement that catch-up contributions by high-income earners in 401(k) and similar retirement plans must be designated as after-tax losses through 2026. announced. contribution.
The IRS also clarified: Notice 2023-62 The plan will allow participants aged 50 and over to continue making catch-up contributions beyond 2023, regardless of income.
This notice provides initial guidance on section 603 of the Secure 2.0 Act enacted in December 2022.
“Under its provisions, from 2024 the new Roth’s catch-up contribution rule will join a 401(k), 403(b), or government 457(b) plan and the previous year’s Social Security wages will exceed “$145,000,” the IRS said.
The agency explained that the administrative transition period is “designed to help taxpayers transition smoothly to the new Roth catch-up requirements and to facilitate an orderly transition to comply with the requirements.” did.
The IRS notice also clarifies that the SECURE 2.0 Act “does not prohibit plans from allowing catch-up contributions, so plan participants age 50 and older may continue to make catch-up contributions after 2023.” I have to.
See also: Beware of Secure 2.0 pitfalls: Wade Pfau
Former U.S. Treasury Secretary Senior Advisor on National Retirement and Health Policy, Mark Airai, now a non-resident senior fellow at the Brookings Institution in Washington, said the IRS and the Treasury Department had “timely and practical guidance.” congratulated.
Ayuri noted that the retiree community “has a two-year transition period to comply with the mandatory ‘Rothification’ of catch-up contributions, and that this guidance is a general guideline for catch-up contributions.” It should be understood that they are giving reassurance about availability,” he told ThinkAdvisor.
“Specifically, catch-up will be allowed for everyone in 2024 and in all other years, despite technical legislation that created uncertainty about the availability of catch-up in 2024. It was confirmed that,” Aiuri explained.
The Treasury and IRS plan to issue future guidance to help taxpayers, and the notice outlines some of the positions expected to be included.
The IRS said it welcomes public comment on the matters discussed in the notice and suggestions for the future.
Related: Ed Slott: What IRA Conversation Advisors and Clients Should Have Now
