In a recent update, the Internal Revenue Service (IRS) has confirmed a two-year delay regarding the Roth contribution catch-up requirements. This provision was originally set to go in effect for taxable years beginning December 31st, 2023 but will now be in effect for taxable years beginning December 31st, 2025.
IRS Position for 401k and 403b Plans
Previously, retirement plans, specifically 401(k) and 403(b) plans, allowed catch-up contributions for all individuals aged 50 or above to be pre-tax deferrals. This allowed these participants to contribute additional pre-tax amounts to their retirement accounts, beyond the standard annual limits.
Secure 2.0 Act
With Secure 2.0 act, individuals aged 50 or older AND earning more than $145,000 in the previous calendar year (2025) will not be allowed to contribute pre-tax deferrals as catch-up contributions. They will only be allowed to contribute Roth deferrals. In other words, high earners eligible for catch-up contributions will no longer have a tax deduction for their additional catch-up contributions.
Extended Time for Retirement Plan Sponsors & Sponsors
The IRS’s new directive defers the implementation of the previously stated rules for Roth catch-up contributions, providing retirement plan sponsors and participants with an extended timeframe to adjust their strategies and compliance procedures.
Plan sponsors, financial advisors, and participants should be proactive in noting this extension. It’s recommended to review current retirement plans and contribution strategies to ensure that they align with the revised timeline.
As the IRS continues to clarify and update its policies, staying informed and proactive will be essential for both plan sponsors and participants. The retirement plan landscape is ever-changing and as auditors at PriceKubecka, we are continuously updating our clients with the laws and regulations that affect their plan’s compliance and operations.
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If you would like a more in-depth look into how we can assist you with this new update from the IRS, feel free to contact us today.
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