On January 10, 2025, the U.S. Department of the Treasury and the Internal Revenue Service released proposed regulations to clarify and implement provisions from the SECURE 2.0 Act of 2022 concerning catch-up contributions in retirement plans.
While the proposed regulations provide much needed guidance on numerous issues affecting employer sponsored retirement plans, it also highlights the complexity involved in implementing these changes.
For more insights and practical considerations regarding these proposed regulations, click HERE to register for Schneider Downs’ Employee Benefits Forum on April 1, 2025, at 9:00 AM ET.
Background
The SECURE 2.0 Act, enacted in late 2022, aimed to enhance retirement savings by updating various retirement plan rules. Among these, catch-up contributions were significantly revised. The proposed regulations address implementation challenges and provide guidance for plan sponsors and participants.
Catch-up contributions allow individuals aged 50 and older to contribute additional elective deferrals to employer-sponsored retirement savings plans, such as 401(k), 403(b) and governmental 457(b) plans, above standard IRS limits. Plans are not required to offer catch-up contributions, but if they do, they must generally be available to all eligible participants at the same dollar amount.
The proposed regulations primarily focus on Section 603 of SECURE 2.0, which requires that catch-up contributions for higher-income plan participants be designated as Roth contributions (the “mandatory Roth catch-up” provision).
In addition, the proposed regulations address Section 109 of SECURE 2.0, which permits eligible catch-up participants aged 60 through 63 to make “super catch-ups,” thereby increasing their catch-up contribution limits for the calendar year (the “increased catch-up” provision).
Mandatory Roth Catch-Ups (Section 603)
Section 603 of SECURE 2.0 introduced a mandatory Roth catch-up contribution requirement for higher-income retirement plan participants. This new provision is scheduled to take effect for taxable years beginning after December 31, 2025, and requires that catch-up contributions made by participants earning more than $145,000 in prior-year FICA wages be made on a Roth basis. The Roth catch-up wage threshold will be adjusted for inflation in subsequent years.
Utilization of Deemed Roth Catch-Up Contribution Elections: As previewed in Notice 2023-62, the proposed amendments would enable a 401(k) or 403(b) plan to allow participants subject to the mandatory Roth catch-up requirement to irrevocably designate any catch-up contributions as Roth contributions. A plan offering this deemed election must give participants an opportunity to choose an alternative election.
Availability of Roth Catch-Up Contributions: According to the proposed regulations, if a plan permits any participant subject to the mandatory Roth catch-up contribution provision to make Roth catch-up contributions, then all catch-up-eligible participants must also be allowed to make Roth catch-up contributions regardless of the applicability of Section 603.
Identification of “Employer Sponsoring the Plan”: The proposed regulation clarifies that the “employer sponsoring the plan” refers to the participant’s common law employer. When multiple employers participate in a plan, wages from each employer are not aggregated for determining the mandatory Roth catch-up application.
Plans Without a Qualified Roth Contribution Program: If a plan lacks a qualified Roth contribution program, participants subject to the mandatory Roth catch-up provision cannot make catch-up contributions under that plan.
Methods for Correcting Failures: The proposed regulations outline methods for correcting failures to comply with the Roth catch-up requirements, but a plan must use the same correction method for all effected participant and may be required to have related policies and procedures in place. Acceptable correction methods include: (i) Form W-2 correction method, (ii) In-Plan Roth Rollover correction method, and (iii) taxable distribution of the contribute intended to be a pre-tax contribution.
Timing for Correcting Failures: The correction deadline depends on the specific contribution limit exceeded.
Super Catch-Up Contributions for Ages 60-63 (Section 109)
Section 109 of SECURE 2.0 amends Code Section 414(v) to increase the catch-up limit for participants attaining ages 60 through 63 during the taxable year.
The proposed regulations provide limited substantive guidance on the increased catch-up limit provision, ensuring compliance with the universal availability requirement and confirming the optional nature of the increased limit.
Contribution Limit: The super catch-up limit is defined as the greater of $10,000 or 150% of the regular age 50 catch-up contribution limit, adjusted for cost-of-living.
- For 2025, the regular age 50 catch-up limit is $7,500, so 150% is $11,250.
- For SIMPLE plans, the regular age 50 catch-up limit is $3,500, making the super catch-up limit $5,250, also adjusted for cost-of-living.
Applicability: This applies to 401(k), 403(b), governmental 457(b), SARSEP, SIMPLE IRA and SIMPLE 401(k) plans.
Effective Date: Taxable years beginning after December 31, 2024. The proposed regulations apply after a date six months from the publication of the final rule, with early election permitted after December 31, 2024.
This change is particularly beneficial for late-career savers, offering a significant boost to retirement funds, but plan sponsors must update systems to accommodate the higher limits.
Impact on Stakeholders
These regulations have significant implications for plan sponsors, administrators and participants:
Plan Sponsors: Must update plan documents, systems and processes to accommodate super catch-up limits and Roth mandates, particularly as it relates to identifying high earners under the Roth requirement.
Participants: Higher-income participants (over $145,000 FICA wages for 2025) face a shift to Roth catch-up contributions, potentially affecting tax strategies, while ages 60-63 benefit from higher contribution limits.
Administrative Complexity: The Roth catch-up mandate introduces challenges in tracking FICA wages and ensuring compliance, with correction methods providing some relief but requiring diligent oversight.
About Schneider Downs Wealth Management
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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