IRS finalizes regs on Roth catch-up rule

The Internal Revenue Service and the Treasury Department have issued final regulations on the new Roth catch-up contribution rule from the SECURE 2.0 Act, along with other provisions of the law.

SECURE 2.0 Act passed at the end of 2022 and contained an extensive list of provisions related to retirement planning, like the original SECURE Act of 2019, with some being phased in over five years. The regs were proposed in January and related to a provision requiring that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions. The catch-up contributions are extra contributions under a 401(k) or a similar workplace retirement plan for employees aged 50 or older.

The final regulations include guidance for benefit plan administrators to implement and comply with the new Roth catch-up rule and reflect comments received in response to the proposed regulations issued in January. The final regs also offer guidance relating to increased catch-up contribution limits under the SECURE 2.0 Act for certain retirement plan participants, especially employees between the ages of 60-63 and employees in newly established SIMPLE plans.

The final regulations mostly echo the proposed regs but the IRS and the Treasury made some changes in response to comments they received on the proposals. For instance, the final regs allow a plan administrator to aggregate wages received by a plan participant in the previous year from certain separate common law employers in determining whether the participant is subject to the Roth catch-up requirement.

The final regs also include changes to some of the provisions in the proposed regulations, including those pertaining to correction of a failure to comply with the Roth catch-up requirement; implementation of a deemed Roth election, and plans that cover participants in Puerto Rico.

The provisions in the final regs relating to the Roth catch-up requirement generally apply to contributions in taxable years starting after Dec. 31, 2026. However, the final regulations also provide a later applicability date for certain governmental plans and plans maintained under a collective bargaining agreement. 

The final regulations also allow plans to implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good faith interpretation of statutory provisions. The final regulations don't extend or modify the administrative transition period provided under Notice 2023-62, which generally ends on Dec. 31, 2025.