IRS Releases Guidance about Catch-Up Contributions Under Secure 2.0

Friday the Internal Revenue Service released guidance about how to execute the requirement under SECURE 2.0 that catch-up contributions made by higher-income participants in eligible DC plans be designated as Roth.

The notice announced a two-year transition period for the requirement. Under section 603(c) of the SECURE 2.0 Act, the provisions of section 603 apply to taxable years beginning after December 31, 2023. However, the IRS noted, the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period.

Specifically, until 2026, those catch-up contributions will be treated as satisfying the requirements of section 414(v)(7)(A), even if the contributions are not designated as Roth contributions. Further, a plan that does not provide for designated Roth contributions will be treated as satisfying the requirements of section 414(v)(7)(B).

“The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have been made aware of taxpayer concerns with being able to timely implement section 603 of the SECURE 2.0 Act,” the notice says. “The administrative transition period described in this notice is intended to facilitate an orderly transition for compliance with that requirement.”

The National Association of Government Defined Contribution Administrators expressed its appreciation for authorization by the Treasury and IRS for the two-year transition period.

“NAGDCA applauds the Treasury department and IRS for authorizing a two-year transition period on Section 603 of SECURE 2.0,” said Matt Petersen, NAGDCA Executive Director in a statement late Friday afternoon. “Leadership at both agencies engaged openly with us on the issue, and we felt our concerns were heard every step of the way. Today’s guidance is an excellent example of the results of an open, fair, and considerate process.”

Full text of the guidance may be accessed here.