Don’t Get Caught Up by the SECURE 2.0 Act’s New 401(k) Catch-Up Rules

By Jess LeDonne, on August 17th, 2023

Late last year, the SECURE 2.0 Act of 2022 (the “Act”) was passed and signed into law. The Act has significant changes to the retirement plan landscape that are important to be aware of and consider as more and more of them become effective.

For example, one of the most impactful changes made by the Act holds that catch-up contributions for high-wage employees (i.e., those that make $145k/year or more) must now be deposited into a 401(k) Roth account. This change, holding that all catch-up contributions to qualified retirement plans are subject to Roth tax treatment, is an important consideration for plans you sponsor, plans you are considering, and plans that you participate in. Plan amendments creating a Roth component may be advisable in many situations. This important provision goes into effect for plans with year ends beginning after December 31, 2023.

Update: As of August 25, 2023, §603 of the SECURE 2.0 Act, as described in the paragraph above, has been extended for a two-year “administrative transition period” and does not apply until January 1, 2026. (Notice 2023-62)

Additional Secure 2.0 Act Changes

We’ve outlined some of the other main changes under the Act below, and we anticipate more guidance will be coming out related to many of these provisions.

  • Raises the required minimum distribution age from 72 to 73, effective January 1, 2023, and to 75, effective January 1, 2033.
  • Allows additional catch-up contributions to defined contribution plans and SIMPLE plans for individuals aged 60-63, effective January 1, 2025.
  • Allows the employer to deposit matching or non-elective contributions into a Roth account.
  • Increases the contribution limits to SIMPLE plans.
  • Allows retroactive deferrals for sole proprietors in the plan’s initial year, effective for plan years beginning after December 29, 2022.
  • Allows a surviving spouse the option to elect to be treated as the plan participant, which can increase the period before RMDs must be taken, effective January 1, 2024.
  • Allows tax-free rollovers of up to $35,000 from qualified tuition plans (also known as 529 plans), effective January 1, 2024.
  • Establishes requirements for automatic enrollment of participants and auto-escalation of employee contributions for employers offering 401(k) and 403(b) plans.
  • Establishes a 10% deferral limit on election to defer recognition of gain on employer stock sales to S corporation ESOPs, effective on sales made after December 31, 2027.

Eliminates the mandatory pre-death distribution requirement for Roth designated accounts in employer plans, effective for taxable years beginning after December 31, 2023.

As you review the additional changes outlined above, please consider working with your retirement plan administrators or consultants to be sure that they are appropriately addressed. And if you need further guidance or have any questions, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Written By

Jessica LeDonne Image
Jess LeDonne
Director, Policy and Legislative Affairs

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Director, Policy and Legislative Affairs