Retirement Savings: IRS Extends Roth Catch-Up Period for Participants 50 and Over

Financial advisor explaining paperwork to elderly retired couple front of desk.
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Under the Secure 2.0 Act, the IRS made a few changes to retirement contributions for the 2024 tax year. But on Friday, August 25, 2023, the IRS announced an “administrative transition” period that extends the start of the new requirement until 2026.

This is good news for what the IRS classifies as “high earners.” It means people making more than $145,000 annual won’t have to make catch-up contributions to their employer-sponsored 401(k) on an after-tax basis.

It is currently possible for Roth IRA and 401(k) contributors to make catch up contributions of up to $7,500 in 2023. Typically, these funds can be contributed with before-tax dollars, reducing your tax liability in those years when you’re earning more money.

But under the new tax law, catch-up contributions must be made with after-tax dollars into a Roth IRA. It was set to go into effect in 2024, but the IRS has provided an administrative transition period.

Many employers, plan providers and organizations requested time to transition to the new system, Kiplinger reported. Employer-sponsored 401(k) plan software and payroll systems required a way to implement after-tax Roth contributions.

“Obviously, any new rule requires new administrative work to implement,” said a group of 200 Fortune 500 entities in a letter written by the American Benefits Council and submitted to the U.S. House Ways and Means Committee.

In notice 2023-62, issued by the IRS, the agency acknowledged: “The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have been made aware of taxpayer concerns with being able to timely implement section 603 of the SECURE 2.0 Act. The administrative transition period described in this notice is intended to facilitate an orderly transition for compliance with that requirement.”

Are You Retirement Ready?

Taxpayers age 50 and older can continue to make pre-tax contributions to their 401(k) or similar plan in 2023, regardless of their income level. In 2026 and beyond, those contributions must be made into a Roth IRA. You will pay taxes on the money when it is deposited into your retirement account, but you can make tax-free withdrawals after retirement.

It’s never too early (or late) to start retirement planning or to modify your retirement plans in light of changing legislation. If you have questions about how the new catch-up contribution changes may affect your income today and in the future, speak with your benefits advisor at work or a retirement planner or financial advisor.

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