Just When I Thought I was Out, They Pull Me Back In

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Just When I Thought I was Out, They Pull Me Back In

By Mark Jones

While most people attribute this famous movie line to Michael Corleone in Godfather III, it is starting to feel like we could apply it to the ever-changing SECURE Act 2.0, as well.

 Earlier this year, our firm released an article about the changes to the Retirement Plan Catch-Up Provision for high-income earners, and their ability to make their catch-up contributions (age 50+) only to the Roth plan option starting in 2024. (You can access that article here). However, there have been some recent changes to this provision that we wanted to bring to your attention. 

 Notice 2023-62

 On August 25th, of this year, the IRS released Notice 2023-62 announcing an administrative transition period that extends until 2026. The new requirement that any catch-up contributions made by higher‑income participants in a 401(k) and similar retirement plans must be designated as after-tax Roth contributions will now not go into effect until 2026.  At the same time, the IRS also clarified that plan participants who are age 50 and over can continue to make catch‑up contributions after 2023, regardless of income.1

 The extension of this administrative transition period was driven by over 200 companies lobbying Congress. They cited the need to have proper time to implement the logistical plan changes that go along with a law change such as this. According to an IRS official, “The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement.”2  

 What This Means for You

To clarify, a high-income earner is defined as anyone making over $145,000, as of 2023.3 If you find yourself over this income limit, and over the age of 50, you will be able to continue to maximize your 401(k)contribution using 100% of the Traditional 401k option – assuming this works best for your individual tax and investment planning situation.  This is a powerful option allowing for full tax deferral for 2024 and 2025.  

 In 2026, if you find yourself in the high-income earner category and no longer able to defer your catch-up contribution to the non-Roth plan option, it is important to remember that catch-up contribution can still go a long way towards helping you reach your retirement goals, even if you are making it to the Roth portion of the plan.  You will be getting your potential tax benefit later on down the road while still putting additional funds away for your retirement.

 As always, if you have any further questions regarding the recent update, please do not hesitate to reach out to our firm.  Thank you again for your continued trust and confidence in Rise Advisors, LLC. 

Advisory services offered through Rise Advisors, LLC (“Rise”), a Registered Investment Adviser. This report is being generated as a courtesy and is for informational purposes only.

  1. IRS.gov. https://www.irs.gov/newsroom/irs-announces-administrative-transition-period-for-new-roth-catch-up-requirement-catch-up-contributions-still-permitted-after-2023
  2. IRS.gov. https://www.irs.gov/newsroom/irs-announces-administrative-transition-period-for-new-roth-catch-up-requirement-catch-up-contributions-still-permitted-after-2023
  3. U.S. Congress, House, Setting Every Community Up for Retirement Enhancement (SECURE Act 2.0) Act of 2022.  117th Cong., introduced in Senate December 2022, www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf