Proposed regs address new Roth catch-up contribution rule

The IRS published proposed regulations (REG-101268-24) on Jan. 13, 2025, addressing the new Roth catch-up contribution rule enacted as part of SECURE 2.0 in December 2022.

The new Roth catch-up contribution rule generally requires all catch-up contributions to be made on a Roth basis for employees with wages exceeding $145,000.

Catch-up contributions are additional elective deferrals that participants age 50 or older can make to certain tax-favored retirement plans (e.g., 401(k), 403(b) and governmental 457(b) plans) in excess of the otherwise applicable limits. The limit on catch-up contributions is indexed for inflation and reached $7,500 in 2025.

Before SECURE 2.0, catch-up contributions could be made on a pre-tax or Roth basis (if permitted by the plan sponsor) and all eligible participants under the plan generally had to be allowed to make the same elections with respect to catch-up contributions. SECURE 2.0 made a number of changes to the catch-up contribution rules, including requiring catch-up contributions for participants whose wages for the preceding calendar year for the employer exceeded $145,000 (indexed for inflation) to be made on a Roth basis.

In addition, SECURE 2.0 provides that if a plan allows an eligible participant who is subject to the new Roth catch-up contribution rule to make catch-up contributions on a Roth basis, then all other eligible participants in the plan who are not subject to the new rule must be permitted to make catch-up contributions on either a pre-tax or Roth basis. These two changes are collectively referred to as the “new Roth catch-up contribution rule.”

As originally enacted, the new Roth catch-up contribution rule was scheduled to be effective for tax years beginning after 2023. In August 2023, the IRS issued Notice 2023-62 to administratively delay the effective date of the new Roth catch-up contribution rule for two years until 2026. The IRS explained that they were addressing taxpayer concerns with being able to timely implement the new Roth catch-up contribution rule and the two-year delay was intended to facilitate an orderly transition for compliance with the new rule.

The proposed regulations also address certain other changes made by SECURE 2.0 to the catch-up contribution rules, including (but not limited to) the increase in the applicable dollar catch-up limit in the case of a catch-up eligible participant who attains age 60, 61, 62, or 63 during a taxable year beginning after 2024, the increased limit is 150% of the otherwise applicable dollar limit for the taxable year ($11,250 for 2025).

The proposed regulations are generally proposed to apply with respect to contributions in taxable years beginning more than six months after the date that final regulations are issued (subject to special applicability date provisions for collectively bargained plans). However, the IRS indicated that plan sponsors can elect to apply the proposed regulations with respect to contributions in taxable years beginning after Dec. 31, 2023 — the original statutory effective date of the new Roth catch-up contribution rule for those plan sponsors that elected to apply the new rule before the two-year administrative delay in the effective date.

The Trump administration will control how and whether the rules are finalized.

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