IRS Provides Catch-Up Guidance Under SECURE 2.0

The IRS has issued Notice 2023-62 to address stakeholder concerns regarding implementation of Section 603 of the SECURE 2.0 Act. Section 603 requires that for taxable years beginning after December 31, 2023, catch-up contributions must be made on a Roth basis for any participant with compensation in the preceding calendar year exceeding $145,000. Responding to concerns with being able to timely implement the provision, the Notice provides for a transition period for the first two taxable years beginning after December 31, 2023, during which catch-up contributions will be treated as satisfying the requirements under SECURE 2.0 even if the contributions are not designated as Roth contributions. This includes a plan that does not provide for designated Roth contributions generally.

Additionally, one of the conforming amendments within Section 603 removed IRC Section 402(g)(1)(C), appearing to inadvertently remove altogether the ability for catch-up contributions after December 31, 2023. The IRS confirms in the Notice that an employer plan may permit catch-up contributions for taxable years beginning after December 31, 2023, and maintains in a footnote that catch-up contributions were permitted under proposed regulations before the enactment of IRC Section 402(g)(1)(C). The Notice further clarifies that elective deferrals made to two or more plans are aggregated for purpose of applying the limitation on the amount of catch-up contributions under IRC Section 414(v)(2), and the elimination of IRC Section 402(g)(1)(C) does not change this result after December 31, 2023.

The IRS intends to issue further guidance with respect to Section 603 of SECURE 2.0 at a later date, and invites comments on or before October 24, 2023.