global Tax IRS Delays Mandatory Roth 401(k) Catch-up Rule until 2026 August 29, 2023 Under the SECURE Act 2.0, Roth catch-up contributions were set to be mandatory for high earners…this has since been delayed two years. Here’s what you should know. Some helpful background If you’re 50 or older, you can make additional “catch-up” contributions of up to $7,500 annually to your employer’s 401K plan. So in 2023, you can contribute up to $30,000 to your 401K ($22,500 + $7,500 catch-up). What was set to change in 2024? Effective for tax years beginning after December 31, 2023, individuals age 50 or older earning more than $145,000 in the prior calendar year were set to be required to deposit any catch up contributions to Roth (i.e. after-tax) accounts. In prior years, affected individuals age 50 or older were able to make pre-tax catch up contributions to their employer-sponsored retirement plans. Under this SECURE 2.0 change, these high earners would no longer be able to receive a tax deduction for these contributions. What’s new? The IRS has recently issued Notice 2023-62, which delays this change until 2026. Impacted earners will now have an additional two years to comply with the mandatory catch-up rule. This delay comes in response to concerns from many companies that this change (if effective in 2024) would result in numerous administrative hurdles. What should you do now to prepare? Now is a great time for those earning more than $145,000 to make their 401(k) catch-up contributions to pretax 401(k)s. This gives earners the opportunity to gain the exclusion from income, instead of needing to have those contributions go to the Roth 401(k). Wondering how you can effectively prepare for this change in 2026? We can help.
