On January 10, 2025, the Department of the Treasury and the Internal Revenue Service issued proposed regulations related to two new catch-up contribution provisions under the SECURE 2.0 Act of 2022 (SECURE 2.0): (1) the provision that allows participants age 60 through 63 to make increased catch-up contributions (so-called “super” catch-up contributions); and (2) the requirement that catch-up contributions for higher income participants be designated as Roth contributions. Many plan sponsors and recordkeepers have been waiting for this guidance before implementing the payroll system changes necessary to comply with these new provisions.
Super Catch-Up Contributions
For taxable years after December 31, 2024, catch-up eligible participants who attain age 60-63 during the year are able to contribute the greater of (i) $10,000, or (ii) 150% of the regular catch-up limit ($11,250, or 150% of $7,500, for 2025) to 401(k), 403(b), and governmental 457(b) plans. The super catch-up contribution limit for SIMPLE plans is also 150% of the catch-up limit for SIMPLE plans ($5,250, or 150% of $3,500, for 2025).
When SECURE 2.0 was passed, it was not entirely clear whether the super catch-up contribution limit was optional for plans that already allowed catch-up contributions. The proposed regulations confirm that plans may, but are not required to, allow super catch-up contributions. The proposed regulations also clarify that permitting super catch-up contributions will not violate the “universal availability” requirement that applies to catch-up contributions (the requirement that all catch-up eligible participants have the opportunity to contribute the same dollar amount as catch-up contributions).
Mandatory Roth Catch-Up Contributions
Beginning in 2024, participants with wages more than $145,000 (subject to indexing) in the immediately preceding calendar year are required to make any catch-up contributions as Roth contributions. The IRS effectively delayed enforcement of this provision for 2024 and 2025 in response to plan sponsor concerns over the work needed to implement these complex rules and outstanding questions on how to comply. The preamble to the proposed regulations confirms that the IRS will not further delay enforcement of the provision, which takes effect January 1, 2026.
The proposed regulations address many of these outstanding questions, and also highlight the complexities of implementing the new requirement. Key takeaways include:
- Impacted Participants. The new requirement only applies to an individual who received wages for purposes of the Federal Insurance Contributions Act (FICA wages) from the “employer sponsoring the plan” in excess of the wage threshold in the preceding calendar year. The proposed regulations clarify several items related to this point:
- An individual who received compensation from the employer sponsoring the plan in the preceding calendar year, but did not receive FICA wages from the employer for that year (for example, a partner who had only self-employment income, or a government employee whose wages are not treated as FICA wages) would not be subject to the Roth catch-up contribution;
- For purposes of determining an individual’s FICA wages, the “employer sponsoring the plan” means the individual’s common law employer. Wages paid by other employers within the same controlled group do not count towards the wage threshold.
- Plans do not need to prorate the wage threshold for a participant’s year of hire.
- Availability of Roth Catch-Up Contributions to All Participants. The proposed regulations confirm that if any catch-up eligible participant who is subject to the mandatory Roth catch-up contribution requirement is permitted to make catch-up contributions for a plan year, then all catch-up eligible participants in the plan must also be permitted to make Roth catch-up contributions for the plan year.
- Plans Without Roth Contributions. The proposed regulations also clarify that if a plan does not allow any Roth contributions, the plan must prohibit participants subject to the Roth catch-up requirement from making catch-up contributions altogether. This prohibition on catch-up contributions will not run afoul of the universal availability requirement, even if participants who are not subject to the Roth catch-up requirement are allowed to make catch-up contributions.
- Deemed Roth Contributions. The plan may provide that any participant subject to the Roth catch-up requirement is deemed to have designated any catch-up contributions as Roth, as long as those participants are given an effective opportunity to make a different election than the deemed Roth catch-up election. The plan can provide for such a deemed election regardless of whether it requires separate catch-up contributions or uses a spillover design.
- Treatment as Roth Contributions as Catch-Up Contributions. The proposed regulations would allow a plan to take into account Roth contributions that are made prior to reaching the relevant deferral limit for purposes of determining whether the mandatory Roth catch-up contribution requirement is satisfied. For example, if a participant makes regular Roth deferrals early in the year, those contributions are permitted to be treated as catch-up contributions if needed to satisfy the Roth catch-up contribution requirement.
- Correcting Failures. The proposed regulations provide a few methods for correcting the error that results when a pre-tax catch-up contribution is made by a participant subject to the Roth catch-up requirement. Correction methods could include (1) distributing the elective deferrals that fail to satisfy the Roth catch-up contribution requirement, (2) transferring the elective deferrals to the participant’s Roth account and reporting the contribution as a designated Roth contribution on the participant’s Form W-2 for the year of the deferral, or (3) conducting an in-plan Roth rollover and reporting the amount of the in-plan Roth rollover on the participant’s 1099-R for the year of such rollover. The permissible correction method and deadline to make corrections will vary depending on the circumstances, including the timing of the correction.
- Effective Date of Regulations. The regulations are generally proposed to be effective for the first plan year that is at least six months after the final regulations are published. However, taxpayers can choose to rely on the proposed regulations immediately.
The proposed regulations provide helpful guidance, but also make it clear that plan sponsors will need to devote time and resources to updating their systems in order to comply with the Roth catch-up contribution requirement. Plan sponsors should begin working with payroll providers and recordkeepers on a process for identifying impacted participants and implementing the deemed Roth catch-up elections well in advance of January 1, 2026.
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