IRS issues Notice 2023-62

In late August, the IRS issued Notice 2023-62, giving 401(k) and 403(b) Plan Sponsors a transitional period until January 1, 2026, to implement the new requirements for Roth catch-up contributions.

The SECURE 2.0 Act of 2022 required that effective January 1, 2024, catch-up contributions from employees whose wages exceeded $145,000 the previous year must be made on a Roth after-tax basis. Additionally, the plan must also allow Roth catch-up contributions for all eligible participants in the plan.

While seemingly simple at face-value, many questions and issues arose. Some of these caused unintended consequences such as the potential elimination of all catch-up provisions in plans or at least those from employees making over $145,000 in order to be compliant with the new rules. As this was not the goal of the legislation, the IRS concluded that transition relief was needed.

The biggest thing the relief provides is a transition period from January 1, 2024, through December 31, 2025, that will allow any catch-up contribution, pre or after tax, to meet the requirements of SECURE 2.0. This will be a welcome relief to both Plan sponsors and participants, as it will allow more time to implement the required changes.

Additionally, the notice states that additional guidance will be issued. This guidance will clarify the participant election procedures as well as clarifying that wages will not be aggregated from different employers to determine the $145,000 threshold.

This notice is great news to all businesses and other entities that sponsor a 401(k) or 403(b) plan. The additional time and guidance will help provide a smoother runway for the changes being presented to retirement plans.

For business owners on any level, all of this can be a challenge to navigate and understand. If you want some clarification or seek business advisory, please reach out to us here at JHM and we'll get you taken care of.

Article written by our very own: Nick Meals

https://www.jhmcpa.com