On August 25, 2023, the IRS delayed the effective date for one of the key provisions of SECURE Act 2.0 which impacts the ability for high-income individuals to choose whether their catch-up contribution is made on a pre-tax or after-tax (Roth) basis.
This is great news for retirement savers as this would have eliminated a popular tax-break for high-income earners and also would have required additional payroll tracking for plan sponsors, payroll providers and recordkeepers.
Below is a timeline of how this provision will change:
- For 2023, participants over age 50 are eligible to contribute an additional $7,500 to their employer sponsored retirement plan on either a pre-tax or after-tax (Roth) basis. This will continue through 2025 with likely changes to the allowed amount each year.
- For 2024, this was scheduled to change as a result of SECURE Act 2.0. The legislation mandated that individuals with 2023 income greater than $145,000, must do their catch-up contributions on an after-tax (Roth) basis.
- The IRS has delayed this change until 2026, allowing high-income earners another 2 years to choose whether their catch-up contributions are made on a pre-tax or after-tax (Roth) basis.
SECURE Act 2.0 was passed December 29, 2022. It is the most impactful retirement legislation in the last 15 years, with 92 provisions that will take place over the next decade. If you have any questions about how this impacts you or your retirement plan, please give us a call.