The Department of the Treasury and the Internal Revenue Service (IRS) recently issued final regulations that address and implement various provisions of the SECURE 2.0 Act. One of the major topics in these regulations is the new Roth IRA catch-up rule.
Catch-up contributions are those that employees aged 50 or older make as additional contributions to a 401(k) or another workplace retirement plan. The Roth catch-up rule requires that catch-up contributions by certain participants with higher incomes constitute after-tax Roth contributions. These regulations will allow plan administrators to better comply with the Roth catch-up rule and put it into practice.
The new set of final regulations also addresses increased catch-up contribution limits under the SECURE 2.0 Act for some retirement plan participants. Eligible participants include employees between the ages of 60 and 63 and employees participating in newly-established SIMPLE plans.
The final regulations note that Treasury and the IRS made some changes based on comments by third parties on the proposed regulations. For instance, under the final regulations, a plan administrator can count wages that a participant receives in the prior year from certain separate employers to decide whether the participant is subject to the Roth catch-up rule. Other changes from the proposed regulations address:
- How to correct the failure to comply with the Roth catch-up rule;
- How to implement a deemed Roth election; and
- Special rules for plans that cover participants in Puerto Rico.
The SECURE 2.0 Act provisions that are addressed by these final regulations generally apply to contributions starting on January 1, 2027. However, some governmental plans and plans subject to collective bargaining agreements may have later applicability dates. Plans also may opt to implement the Roth catch-up rule before 2027 if they use a reasonable and good-faith interpretation of relevant statutes. Finally, the regulations do not change the administrative transition period that Notice 2023-62 provides, which is scheduled to end on December 31, 2025.
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