On August 25, 2023, the IRS issued Notice 2023-62, which gives retirement plan sponsors a two-year administrative transition period to implement the SECURE 2.0 requirement that certain catch-up contributions to 401(k) and similar defined contribution plans be made on an after-tax Roth basis. More specifically, SECURE 2.0 requires catch-up eligible participants who received more than $145,000 in wages from their employer in the prior year to make catch-up contributions on a Roth basis. This SECURE 2.0 requirement applies for tax years beginning after December 31, 2023. As we noted in a previous Employee Benefits Blog post Ready for Roth Contributions?, this deadline presented challenges given the necessary operational changes and outstanding questions regarding certain aspects of the statute.
Notice 2023-62 addresses these concerns by giving plan sponsors until January 1, 2026 to implement the SECURE 2.0 Roth catch-up rule. It provides that the two-year administrative transition period is intended to facilitate an orderly transition for compliance. It also makes clear that, during this period, catch-up contributions will continue to be treated as satisfying the requirements of the Internal Revenue Code, even if they are not designated as Roth contributions. The Treasury Department and the IRS stated that they intend to issue future guidance to help plan sponsors implement this new rule.
Importantly, Notice 2023-62 also fixes a technical glitch in SECURE 2.0 that inadvertently eliminated catch-up contributions altogether. It clarifies that participants who are age 50 and over may continue to make catch-up contributions in 2024 and later, regardless of income.
Notice 2023-62 provides welcome relief to plan sponsors who have been facing administrative challenges in implementing this provision.