SECURE Act 2.0 and Roth catch-up contributions

IRS releases new guidance granting a two-year delay in effective date for mandated designated Roth catch-up contributions

Business and finance |
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On Aug. 25, 2023, the Internal Revenue Service released new guidance addressing Section 603 of the SECURE Act 2.0 concerning Roth catch-up contributions for 401(k), 403(b) and/or governmental 457(b) plans.

The guidance grants a two-year delay in the effective date that mandates designated Roth catch-up contributions for employees aged 50 or older who are earning more than $145,000 in 2023. Additionally, the guidance addressed a technical error – first identified by the American Retirement Association – that would have eliminated all catch-up contributions beginning in 2024.

Three takeaways

  1. Catch-up contributions may continue after 2023. Congress intends to correct the technical error in the SECURE Act 2.0 regarding this detail, and the IRS plans to move forward with determinations as though it were currently part of the law.
  2. Employees may make pre-tax catch-up contributions through 2025, regardless of income. This two-year transition period affords plan sponsors, recordkeepers and participants additional time to comply with the mandatory Roth catch-up requirement.
  3. Self-employed individuals are not subject to the Roth contribution threshold. The $145,000 Roth contribution threshold is based on FICA wages and, therefore, does not apply to those who are self-employed (such as partners, sole proprietors and many pastors).

Here to help

The SECURE Act 2.0 is part of the Consolidated Appropriations Act of 2023 and is intended to help individuals better prepare for retirement. For employers, it’s important to understand how SECURE Act 2.0 impacts workplace benefits and retirement savings plans.

Everence® is staying on top of what’s happening with SECURE Act 2.0, actively monitoring the Department of Labor and Employee Benefits Security Administration so that we can help organizations and businesses navigate the key provisions that impact workplace benefits and retirement plans. Contact your Everence financial consultant for trusted expertise and/or reach us at 800-653-9723 or organizations@everence.com.

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