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 December 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

• It is important that all stakeholders involved - plan sponsors, benefits vendors, and payroll providers - collaborate so that impacted employees are identified, and Roth catch-up contributions are processed correctly. To get started, please discuss necessary changes with your Plan Recordkeeper or Administrator. For example:
  • 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 in your payroll system to identify High Wage Earners. We will send more information when the new field is available. You will need to update the field to ensure High Wage Earners have Roth catch-up contributions deducted.
• To begin identifying employees who may be considered High Wage Earners in 2024, you can use the Reporting function in your payroll system to download the most recent quarter’s Wage and Tax Register. An employee’s 2023 year-to-date Medicare taxable wages may be used to determine their High Wage Earner status.
• We will continue to update you as IRS guidance is made available either on this or other provisions of the SECURE 2.0 Act.

Resources and More Information

Click on this Eye on Washington article for more details about the SECURE Act 2.0.