401(k) and 403(b) plan sponsors received some good news on Friday, as the IRS announced a two-year transition period to comply with the requirement under SECURE Act 2.0 that all catch-up contributions by high-earners be made as post-tax Roth deferrals.
Absent this relief, the Roth Catch-Up Rule would have been mandatory for plan years beginning on or after January 1, 2024. IRS Notice 2023-62 now delays this requirement until January 1, 2026, meaning that those earning over $145,000 annually can continue to make pre-tax catch-up contributions for the next two years. Over 100 organizations, including plan advocacy groups, law firms, and large employers, had previously sent a joint letter to the House Ways & Means Committee requesting a delay of the Roth Catch-Up Rule due to the complications the rule will impose on payroll systems and the lack of transition guidance issued by the IRS on the nuances of the rule.
Notice 2023-62 also clarifies that the Roth Catch-Up Rule will not apply to those that are self-employed (e.g., partners and sole proprietors), even after January 1, 2026. This is because the $145,000 Roth contribution threshold is based on FICA wages. Because self-employed individuals do not receive wages subject to FICA, the IRS confirmed the requirement will not apply to them.
