IRS Notice Allows for an ‘Administrative Transition Period’ for Mandatory Roth Catch-up Contributions

The IRS issued Notice 2023-62 on August 25 which provides an extension to the enforcement date for the new Roth catch-up provisions. SECURE 2.0 included a provision requiring catch-up contributions for individuals earning over $145,000 to be after-tax Roth-type contributions. Many SECURE 2.0 provisions require administrative enhancements, but this provision was the most problematic. Nearly 200 corporations, law firms, and advocacy organizations (including most major recordkeepers) had signed a letter to the House Ways and Means Committee requesting a two-year delay of this provision. This was also a concern for large governmental plans that did not have a Roth option or where the governmental plan was bound by state laws or union contracts that would need to be updated to include the catch-up feature.

With the clock ticking and plan sponsors and recordkeepers scrambling to complete updates by the end of the year, the IRS Notice is a welcome relief. The rule is still effective Jan. 1, 2023, but the IRS Notice defines the first two taxable years following the effective date as an ‘administrative transition period’. This ‘administrative transition period’ allows for the following:

  1. For individuals earning over $145,000, catch-up contributions made on a pre-tax basis will be treated as satisfying the new rule even though they are not designated Roth contributions, and
  2. Catch-up contributions made in plans that do not currently offer Roth contributions will be treated as satisfying the rule.

This effectively extends the effective date to Jan. 1, 2026. Even if plan sponsors and recordkeepers had the administrative ability to implement the provision, they should continue to allow participants earning over $145,000 to make pre-tax catch-up contributions.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

Comment On This Article