The Treasury Department and the IRS provided proposed regulations on Jan. 10 that address several SECURE 2.0 Act provisions, including ones aimed at the new Roth IRA catch-up rule and the new automatic enrollment requirement for 401(k) and 403(b) plans.
Signed into law on Dec. 29, 2022, SECURE Act 2.0 includes numerous significant provisions affecting individual retirement savers. It builds on the original SECURE Act, which was signed into law in December 2019.
One set of proposed regulations issued last Friday pertains to catch-up contributions, which are additional contributions under a 401(k) or similar workplace retirement plan that generally are allowed with respect to employees who are age 50 or older.
This includes proposed rules related to a provision requiring that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions.
The proposed regulations provide guidance for plan administrators to implement and comply with the new Roth catch-up rule and reflect comments received in response to Notice 2023-62, issued by the IRS in August 2023.
When originally passed, SECURE 2.0 required catch-up contributions made to qualified retirement plans by employees who earned $145,000 or more in the prior year to be made on a Roth basis beginning in 2024. However, IRS Notice 2023-62 established a two-year extension, delaying implementation until Jan. 1, 2026. Additionally, starting last year, the catch-up amount will be indexed for inflation annually. Beginning in 2025, individuals who are 60 to 63 years old will be able to contribute an additional catch-up contribution of $10,000 to 401(k) and 403(b) plans and $5,000 to a Simple IRA plan each year.
The proposed regulations provide guidance relating to the increased catch-up contribution limit under the SECURE 2.0 Act for certain retirement plan participants. Affected participants include employees between the ages of 60 and 63 and employees in newly established SIMPLE plans.
Automatic enrollment in 401(k) and 403(b) plans
The other proposed regulations deal with provisions requiring newly established 401(k) and 403(b) plans to automatically enroll eligible employees beginning with the 2025 plan year.
In general, unless an employee opts out, a plan must automatically enroll the employee at an initial contribution rate of at least 3% of the employee’s pay and automatically increase the initial contribution rate by one percentage point each year until it reaches at least 10% of pay, according to the IRS. This requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, the date the SECURE 2.0 Act became law, with exceptions for new and small businesses, church plans, and governmental plans.
The proposed regulations provide guidance to plan administrators for properly implementing this requirement and are proposed to apply to plan years that begin more than six months after the date that final regulations are issued. Before the final regulations are applicable, plan administrators must apply a reasonable, good faith interpretation of the statute, the IRS said.
Treasury and the IRS are asking for comments on both proposed regulations. Comments may be submitted through the Federal Register. See the proposed regulations for more information.
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Tags: Benefits, IRS, Legislation, Payroll, Taxes
