The Internal Revenue Service (IRS) issued a notice on August 25, with an unexpected delay in the implementation of a provision of the SECURE 2.0 Act of 2022. The delay comes as welcomed news to employees participants in a 401(k), 403(b) or governmental 457(b) plan who earn in excess of $145,000 in Social Security wages. This provision, originally set to take effect in 2024, would have required such individuals to make catch-up contributions into their respective plans as after-tax Roth contributions rather than the current practice of pre-tax catch-up contributions.
For reference, the catch-up contribution is designed as an opportunity for individuals aged 50 or over to make additional contributions to their retirement savings. Under the current rules, these catch-up contributions can be made on a pre-tax basis, immediately reducing one’s taxable income for the year in which the contribution is made.
The Notice, officially termed as Notice 2023-62 by the IRS, pushes back the requirement of converting these catch-up contributions into after-tax Roth contributions. The implications are significant; Roth contributions are made from after-tax income, and thus do not provide the immediate tax relief of regular and catch-up contributions made on a pre-tax basis.
While the delay may be seen by many as offering a much-needed respite, it also signals a shift in the U.S. government’s approach to retirement savings, which legal professionals working with investment and financial companies must closely monitor.