SECURE 2.0 Catch-Up Contributions Must be Made on a Post-Tax (Roth) Basis for “High Wage Earners” beginning in 2024

When the Consolidated Appropriations Act of 2023 was signed into law late last year, it included several provisions affecting retirement savings plans. These provisions are collectively referred to as the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0 Act).

The SECURE 2.0 Act includes many new benefits to employers and employees that are designed to make it more attractive for employers to offer retirement plans and to improve retirement outcomes for employees. Of the many changes, one of particular interest is SECURE 2.0 Act Section 603 - Age 50 Catch-up Contributions Must be Made on a Post-Tax (Roth) basis for “High Wage Earners” beginning in 2024.

Currently, employers may offer participants who are age 50 or older in certain retirement plans (401(k) plans, 403(b) plans, 457(b) plans etc.) the opportunity to defer additional compensation (more than the standard annual limit, which is $22,500 for 2023) in the form of a catch-up contribution to their retirement accounts. The catch-up contribution limit for 2023 is $7,500. At the discretion of the employer, these catch-up contributions could be made either on a traditional pre-tax basis or as Roth contributions.

Under SECURE 2.0, for tax years beginning after Dec. 31, 2023, any retirement plan such as a 401(k), 403(b), or 457(b) (except a SARSEP or SIMPLE IRA plan) that permits catch-up contributions will be required to treat any catch-up contributions made by “High Wage Earners” as post-tax Roth contributions. A “High Wage Earner” is an employee whose wages (as defined in Internal Revenue Code Section 3121(a)) from the employer sponsoring the plan during the preceding calendar year exceeded $145,000 (indexed annually). Plan sponsors that currently offer catch-up contributions but do not offer Roth contributions must add a Roth contribution feature to enable “High Wage Earners” to make catch-up contributions.

Next Steps and How ADP Will Assist

• Do you need to add Roth to your plan?
• Do you have a separate election for catch-up contributions?
• Do you allow catch-up contributions at the same time as standard contributions (concurrent)?

This fall, we will provide a new field to allow you to identify “High Wage Earners” whose catch-up contributions must be made as Roth. We will send more information when the new field is made available in your ADP® solution. In the meantime, please consider all the changes that will be required to support your plan and your customized solution (i.e. new deductions, updates to reports, connections, or interfaces, etc.)

Resources and More Information

We appreciate your business and value your partnership. We will continue to update you as IRS guidance is made available either on this or other provisions of the SECURE 2.0 Act. If you have any questions, please contact your ADP Service Representative.