Employers Get a 2-Year Breather on Complying with the Secure 2.0 Change to Catch-Up Contributions
The Internal Revenue Service (“IRS”) issued Notice 2023-62 last week, which addresses a change made by the SECURE 2.0 Act of 2022 (“Secure 2.0”) to the 401(k) plan rules applicable to so-called “catch-up contributions” that may be made by older plan participants.
Background—Catch-Up Contributions and Roth Contributions
Employers are permitted to write their 401(k) plans to allow employees who are age 50 or older to make catch-up contributions in excess of the annual limit on elective contributions. Therefore, for example, someone who is at least 50 years old in 2023 can elect this year to contribute an additional $7,500 on top of the normal limit of $22,500 that a person who is younger than 50 can elect to contribute.
Employers are also permitted to allow 401(k) plan participants to make their elective contributions as Roth contributions, which go into the plan on an after-tax basis. If these Roth contributions satisfy requirements on how long they must be held in the plan, they ultimately can be distributed, along with earnings on the contributions, tax free.
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