IRS Offers Transition Relief for the Implementation of the Secure 2.0 Roth Catch-Up Requirement

On Friday, August 25, 2023, the IRS issued Notice 2023-62 (the “Notice”) which provides a two-year administrative transition period for plan sponsors to implement Section 603 of the SECURE 2.0 Act (“Section 603”). The Notice also confirms that individuals aged 50 and over will continue to be eligible to make catch-up contributions for plan years beginning after December 31, 2023, despite a technical error in Section 603 that inadvertently removed the catch-up contribution provisions from the Code.

Under Section 603, all catch-up contributions to qualified retirement plans made by participants with compensation greater than $145,000 (as indexed) are subject to Roth tax treatment. In addition, other participants (i.e., those with compensation of $145,000 or less) must be permitted to make Roth catch-up contributions if any participant is required to make catch-up contributions on a Roth basis. Section 603 was initially set to be effective for taxable years beginning after December 31, 2023; however, under the transition relief provided in the Notice, Section 603 will not become effective until taxable years beginning after December 31, 2025. During the administrative transition period, catch-up contributions that are not designated as Roth contributions will still be treated as satisfying the requirements of Section 603. In addition, qualified retirement plans that do not permit designated Roth contributions will be allowed to permit participants to make catch-up contributions through the end of the transition period.

The Notice indicates that the IRS is requesting comments and intends to issue future guidance with respect to the implementation of Section 603.

If you have any questions about the information in this alert, please contact your relationship attorney or any member of Dykema’s Employee Benefits and Executive Compensation Practice Group.