By Steven Ortiz (Mutual of America Financial Group)
As planning starts for 2024, you may be considering how to keep your plan in compliance with the SECURE 2.0 Act and take advantage of certain plan enhancements. In this article, we provide an important update about the provisions of the SECURE 2.0 Act, specifically on the decision by the Internal Revenue Service (IRS) to delay the implementation of the Roth catch-up provision.
The SECURE 2.0 Act originally provided that, beginning in 2024, all catch-up contributions made by participants with an annual compensation of $145,000 or more in the prior year must be made on a Roth basis.
However, the authors of the legislation for SECURE 2.0 mistakenly deleted the provision that allowed catch-up contributions for savers at every income level, which would have meant the end of catch-up contributions after 2023.
On Friday, August 25, 2023, the IRS stepped in and released new guidance providing relief from both the 2024 compliance deadline and the inadvertent removal of catch-up contributions. The IRS noted that the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period for plan participants and plan sponsors.
This means a plan will not be out of compliance with SECURE 2.0 if it continues to permit participants earning $145,000 or more in the prior year to make catch-up contributions on a non-Roth basis in 2024 or 2025. In addition, the IRS stated that plans without a designated Roth account will not be required to add a Roth account in order to continue to accept catch-up contributions in 2024 and 2025.
The IRS also clarified that, despite the technical error, catch-up contributions for those 50 and over will continue to be permitted. Read the full text of the updated guidance.
Mutual of America will continue to provide updates on timing and implementation. If you have questions, please email Steven Ortiz, Mutual of America Account Representative.
Steven Ortiz is an Account Representative at Mutual of America.
