SECURE 2.0 Implementation: Roth Catch-up Rule Pushed Back

Here’s more news about the implementation of SECURE 2.0. In a recent article, we discussed a provision of the Act that, beginning in 2024, would have required highly compensated employees to make any catch-up contributions as Roth contributions. This provision will not affect too many TSP account holders for two reasons: 1) Catch-up contributions can only be made by those participants who are 50 or older (including those who turn 50 during the year); and 2) This law’s definition of highly compensated employees covers those who make more than $145,000 a year.

Apparently, retirement plan custodians and record-keepers raised a stink about the implementation date of January 1, 2024, claiming that it would have been difficult, if not impossible, to be able to implement the requirement as called for in the Act.

Their pleas did not fall on deaf ears. On Friday, August 25th, the Internal Revenue Service (IRS) issued IRS Notice 2023-62, which pushed off the implementation date to January 1, 2026. Thus, no employees (highly compensated or otherwise) will be required to make their catch-up contributions as Roth contributions. Of course, any employee will still be able to make Roth catch-up contributions if their plan has a Roth component (as does the TSP).

The IRS referred to this as an “administrative transition period” and promised to issue further guidance clarifying the provisions of SECURE 2.0. I can hardly wait.

In other news, Fidelity Investments announced that the number of retirement plan millionaires is on the rise again now that market performance has improved. The data they shared was from plans and IRAs managed by Fidelity. They said the volume of millionaires has increased 25% so far this year, though the total number of millionaires is still less than it was at the end of 2021.

Overall, in the accounts managed by Fidelity only 1.6% of 401(k) accounts and 2.5% of IRAs have balances of $1,000,000 or more.

Citation: FEDweek- Published: September 5, 2023