A Safer Retirement and Environment – What We’re Implementing to Help Keep You Safe: READ MORE

Here at Chadmere Capital Inurance and Financial Services, we are adhering to state and local guidelines in order to protect both the health and safety of clients and staff. Keeping our clients and staff safe is our highest priority and we’re taking all appropriate measures to ensure a safe environment. Should you prefer to not meet face-to-face, we are continuing to serve our clients through virtual settings such as Zoom or phone calls.

We look forward to continuing to help individuals and families achieve their ideal retirements.

Chademere Capital Insurance and Financial Services
(803) 242-1050

CLOSE

MORE ON THE ROTH CATCH-UP CONTRIBUTIONS DELAY

By Ian Berger, JD
IRA Analyst
Follow Us on X: 
@theslottreport
The August 28, 2023 Slott Report summarized IRS Notice 2023-62, where the IRS delayed the effective date of the SECURE 2.0 rule requiring catch-up contributions by higher-paid older employees to be made on a Roth basis. The postponement until January 1, 2026 was in response to persistent complaints by recordkeepers and employer plan lobbyists that it would be impossible to have the new rule in place by its original January 1, 2024 effective date. The delay means that until 2026, plans can continue to accept pre-tax catch-up contributions from all employees (including high-paid).

The Roth catch-up mandate raised several questions that the IRS preliminarily addressed in Notice 2023-62:

  • The Roth mandate only applies to employees with “wages” from the employer in the preceding year that exceeds a dollar threshold. (That threshold would have been $145,000 in 2023 wages had the rule become effective in 2024.) But self-employed persons have self-employment income, not wages. If a self-employed’ s income exceeds the dollar limit in the prior year, is he required to make catch-ups on a Roth basis?  The IRS said no. Only high-paid workers with actual “wages” are subject to the Roth rule. The IRS also confirmed that “wages” means wages subject to FICA; that is, amounts reported on Box 3 (not Box 1) of W-2.
  • What if an employee subject to the Roth catch-up requirement makes an election to make catch-ups on a pre-tax basis? The IRS said plans can automatically disregard that election and treat it as an election to make catch-ups on a Roth basis.
  • Sometimes, a 401(k) plan is sponsored by more than one employer. If an employee has wages in the preceding year from more than one sponsoring employer, are her wages aggregated for purposes of the dollar threshold? The IRS said no. For example, assume  Companies A and B both sponsor the same 401(k) plan, and the Roth mandate in 2026 applies to someone with 2025 wages in excess of $150,000. Sandy changed jobs from Company A to Company B in 2025 and had $100,000 of wages from Company A and $125,000 wages from Company B. Sandy, a Company B employee in 2026, isn’t subject to the Roth mandate because only her 2025 Company B wages ($125,000) – not the combined $225,000 – are taken into account.
  • What will happen to a plan in 2026 that doesn’t already offer Roth contributions and doesn’t want to add them? (After all, 401(k) Roth contributions are optional.) Can the plan continue not to offer Roth contributions and limit catch-up contributions to only lower-paid employees (which would be pre-tax)? Or, must the plan eliminate catch-ups for all employees? Here, the IRS punted and asked for comments from the public before deciding.

We’ll let you know when the IRS issues official guidance on these issues.

https://www.irahelp.com/slottreport/more-roth-catch-contributions-delay

Ready To Take

THE NEXT STEP?

 

For more information about any of our products and services, schedule a meeting today.

Or give us a call at (803) 242-1050

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. Nothing on this website constitutes investment, legal or tax advice, nor that any performance data or any recommendation that any particular security, portfolio of securities, transaction, investment or planning strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations, execution of required documentation, and receipt of required disclosures. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #175083.

 ADV Part 2A & Form CRS              Privacy Policy