SECURE 2.0 ACT PLAN AMENDMENT – ROTH CATCH-UP CONTRIBUTIONS
As you are aware, Section 603 of the SECURE 2.0 Act of 2022 provided new rules for Roth and catch-up contributions effective for plan years after December 31, 2023. However, on August 25, 2023, the Internal Revenue Service (“IRS”) issued Notice 2023-62 (“Notice”) that extended the implementation of the Roth Catch-Up Contribution requirement to the plan year beginning after December 31, 2025.
For plans that follow the calendar year as their plan year, this means the requirement for catch-up contributions to be made as Roth deferrals for applicable employees will take effect on January 1, 2026.
As a reminder, the Act mandates that all qualified retirement plans that permit catch-up contributions must do so in the form of Roth contributions for certain highly paid individuals, defined as those earning at least $145,000 in the prior year (NOTE: This $145,000 amount will be indexed after 2025).
Example: For 2026, someone who is at least age 50 can contribute as pre-tax deferrals $7,500 in catch-up contributions in addition to the standard deferral amount of $23,500, thus allowing $31,000 in overall pre-tax deferrals. Starting in 2026, if an employee earned more than $145,000 in 2025, those $7,500 in catch-up deferral contributions could only be made on an after-tax basis (i.e., as Roth deferral contributions) into the participant’s designated Roth account.
Therefore, starting January 1, 2026, all plans that allow participants to make catch-up contributions must offer Roth contributions for highly paid individuals making catch-up contributions. Otherwise, only non-highly paid individuals will be permitted to continue making catch-up contributions.
Your plan currently allows catch-up contributions but does not allow Roth contributions. If you wish to allow highly paid individuals to make catch-up deferral contributions, you must amend the plan to permit Roth contributions. Your options are as follows:
- Amend plan to permit Roth contributions. If this option is selected, as mentioned above, you must ensure that your payroll system is set up so that in 2026, any catch-up deferral contributions made by employees who earned more than $145,000 in the prior year are made as after-tax Roth contributions.
- Amend plan to remove catch-up contributions. If this option is selected, starting in 2026 you must ensure that no participant can defer more than the standard annual limit for deferrals, with no additional catch-up deferral contributions being permitted.
- DO NOT amend plan. If this option is selected, starting in 2026, catch-up deferral contributions will be limited to non-highly paid individuals only.
Our office will prepare an amendment, if needed, for your signature in the coming months, and our Billing Department will send you an invoice for this service if applicable.
If you have any questions regarding this matter, please feel free to contact our office.