Could the 15-Year Catch-Up Election Enable a Pre-Tax Catch-Up Deferral Under SECURE 2.0?

Q: Our 403(b) plan eliminated the 15-year catch-up election several years ago due to the administrative complexity of the election and the fact that only a handful of people were using it. However, given the SECURE 2.0 Act of 2022 restriction forcing age-based catch-up elections to be Roth beginning in 2024 for those with prior–year wages exceeding $145,000, I thought that there may be some value in bringing back the 15-year catch-up election so that affected employees could make a catch-up election that is not restricted to Roth deferrals. What say the Experts?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Interesting issue! The 15-year catch-up election is an election unique to 403(b) plans where, via a complicated calculation, individuals who have completed at least 15 years of service with a qualified organization MAY be able to contribute an additional amount greater than the applicable Internal Revenue Code Section 402(g) limit to make up for relatively smaller contributions made in prior years. This additional special catch-up cannot exceed $3,000 per year and is capped at a lifetime limit of $15,000. The 15-year catch-up is also subject to an ordering rule whereby any deferral in excess of the Section 402(g) limit is attributed to the 15-year catch-up first, then the age-50 catch-up, if an individual is eligible for both elections. Thus, we can see your thinking that the 15-year catch-up election may have some value in a scenario where someone is otherwise unable to make a traditional pre-tax catch-up deferral.

However, we have yet to see any regulations regarding the new mandated Roth catch-up and how it interacts with other catch-up elections. If the current ordering rule remains unchanged, the administrative complexity of the current 15-year catch-up election, combined with the fact that people earning more than $145,000 are unlikely to be eligible for the 15-year catch-up, would leave the Experts to believe that, in many scenarios, bringing the catch-up election back for this purpose might not be an efficient solution to the problem of mandated Roth catch-up.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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