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IRS Provides Taxpayers with Temporary Relief of Catch-Up Contributions to Employer-Sponsored Retirement Savings Plans by Maxwell Jewell, CPA, MST

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Posted on December 06, 2023 by Maxwell Jewell

With the release of Notice 2023-62, the IRS has again delayed the effective date of a SECURE Act 2.0 provision that would have required certain participants in employer-sponsored retirement savings plans age 50 and older to make catch-up contributions to those plans on a Roth basis beginning in 2024. This relief extends the start date to 2026.

Section 63 of the SECURE Act 2.0 requires 401(k), 403(b) and 457(b) plan participants age 50 and older with prior-year Social Security wages exceeding $145,000 to designate catch-up contributions to those plans as after-tax Roth contributions. Under this provision, affected employees could continue using pre-tax dollars to make elective salary deferrals to their defined contribution plans, but any catch-up contributions would have to be made using after-tax dollars. Consequently, high-income earners age 50 and older would have to pay taxes on their catch-up contributions upfront and lose the benefit of using those amounts to reduce their taxable income at a time when they are usually at the height of earnings capacity.

By delaying the start date of the Roth catch-up provisions of the law to 2026, the IRS is allowing employees to continue using pre-tax dollars for catch-up contributions to their employer-sponsored retirement plans in 2023, 2024 and 2025, thereby reducing their taxable income for those years. The relief also provides employers with more time to prepare for the administration of implementing the law and adding a Roth component to their existing benefits plans.

About the Author: Maxwell Jewell, CPA, MST, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors & CPAs, where he provides tax and consulting services to high-net-worth families and businesses in the private equity and software sectors. He can be reached at the CPA firm’s New York City office at (646) 213-7600 or info@bpbcpa.com.