- Currently, employers can (but are not required to) permit retirement plan participants who are age 50 or older to make catch-up contributions that exceed the otherwise applicable Section 402(g) limit (which is $22,500 for 2023). The 2023 catch-up contribution limit is $7,500. Participants can elect whether to make catch-up contributions on a pre-tax and/or a Roth basis.
- As of January 1, 2024, SECURE 2.0 changes these rules for older participants who receive more than $145,000 in wages from their employer in the prior year. It requires that older participants who meet this wage threshold make catch-up contributions on a Roth basis. This $145,000 limit will be adjusted for inflation beginning in 2025.
- SECURE 2.0 refers to “wages” as defined in Section 3121(a) of the Internal Revenue Code. This definition will likely differ from the definition of “compensation” or “wages” that many employers currently use under their plans and will require them to keep track of yet another dollar limit.
- Employers have questions about how this new rule applies, including:
- Since plans are not required to permit catch-up contributions, can employers eliminate the ability to make catch-up contributions only for participants who hit the $145,000 threshold in the prior year?
- Can employers require all catch-up contributions to be made on a Roth basis?
- How does the $145,000 wage requirement work for mid-year hires? For example, if an employee is required to make Roth catch-up contributions for the year based on prior year wages received from his or her employer, but then gets a job with a new employer in the same year, is the employee permitted to make non-Roth catch-up contributions to his or her new employer’s retirement plan?
- Employers with plans that do not currently offer Roth contributions need to decide whether to implement a Roth feature or to eliminate catch-up contributions altogether.
- Employers should be working with their recordkeepers and their payroll providers to ensure that they understand the impact of this change and are making the system changes necessary for implementation.
- We would expect additional guidance on this new requirement or a deadline extension before the end of 2023.