The Internal Revenue Service (IRS) released guidance on August 25, 2023, laying the groundwork for the implementation of Section 603 of the SECURE 2.0 Act of 2022. This provision requires high-paid employees to make age-based catch-up contributions to 401(k), 403(b), or governmental 457(b) plans on a Roth after-tax basis. The enforcement of this requirement was initially set for January 1, 2024, however, due to numerous requests for relief from employers, the IRS has deferred its enforcement by two years allowing for necessary adjustments to payroll and recordkeeping systems.
The IRS’ welcome announcement was laid out in Notice 2023-62, which provided key clarifications and guidance on some contentious and confusing aspects of the planned policy. The IRS noted that there were widespread requests for relief to accommodate the changes brought by this new legislation. The change under the SECURE 2.0 Act meant employers needed time to update their payroll and recordkeeping systems.
This news presents a significant development in the realm of employee retirement contributions, particularly impacting those high-earning employees that fall under the stipulations outlined within Section 603. By guaranteeing that modifications are made on an Roth after-tax basis, the enforcement is in line with the broader objective of the SECURE 2.0 Act to ensure increased transparency and accountability in retirement contributions and savings.
For more details on the guidance and its potential impacts, the full IRS Notice 2023-62 can be accessed here.
The original news article regarding the IRS’s enforcement delay and its implications can be found here.