SECURE 2.0 Roth Guidance Provided and Requested

By Bolton August 31st, 2023

The last days of 2022 ushered in SECURE 2.0 with numerous retirement plan provisions. One of the headlining provisions surrounds the expansion of catch-up contributions but with the limitation that a Roth fund must be established and used for catch-up contributions beginning January 1, 2024 for those whose FICA wages exceed $145,000 in the prior year. SECURE 2.0 required implementation of this provision by December 31, 2023.

The IRS released Notice 2023-62 on August 25, 2023, after considerable concerns of administrative challenges in establishing these Roth provisions particularly for plans that do not currently offer a Roth fund. This Notice provides for a two-year period that is “intended to facilitate an orderly transition for compliance”. In the meantime and until December 31, 2025, without triggering qualification issues:

  • Catch-up contributions for higher income participants will be treated as compliant even if the contributions are not designated as Roth contributions.
  • A plan that does not currently have a Roth option available does not need to establish one before the end of 2025.

This Notice also fixed the technical error we commented on in March which seemingly banned all catch-up contributions after 2024.

The IRS anticipates releasing further guidance on the following:

  • Treatment for participants who have no prior year FICA earnings,
  • Availability of Roth designation overrides if no designation made, and
  • Applicability when multiple employers track earnings

The IRS has also requested comments on whether future guidance should address the situation where a plan permits catch-up contributions, does not currently include Roth provisions, and does not want to add Roth provisions. Could the plan only offer catch-up contributions to participants with FICA earnings under the earnings limit?

Contact a Bolton consultant to better understand how this announcement might impact your organization.