In the closing stages of 2022, U.S. Congress passed the SECURE Act 2.0. One of its key provisions introduced was an obligation that requires highly compensated employees (HCEs) to only make catch-up contributions through a Roth after-tax basis. Fast-forward less than a year and just a few months shy of the new rule’s due initiation, the IRS issued Notice 2023-62. This notice provides eagerly awaited transition relief for the Roth catch-up contribution rule by extending the compliance period by an additional two years.
This recent move by the IRS has eased burdens for HCEs who would have been obligated to start making catch-up contributions solely through Roth in the near future. Administrators of 401(k) and 403(b) plans struggling to amend their programs beforehand can also now leverage the extended compliance period. They will, however, still need to adjust their contribution process, ensuring it aligns with the new policy when it takes effect.
The notice mentioned above did not come singly but in conjunction with Notice 2023-14. It clarified that for annual additions to defined contribution (DC) plans, discretionary matching contributions made after the plan year-end, but before the tax return due date, can be attributed to the prior plan year. This change presents an opportunity for sponsors of DC plans to manage their liability more effectively after the end of the plan year.
The decision to extend the compliance period by an additional two years truly gives breathing space to those affected. During this period, HCEs and administrators alike should strategize on how to optimally integrate the SECURE Act 2.0 mandates into their financial planning before the new deadline.