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IRS Announces Roth Rule Delay: Relief for Retirement Savers

On August 25, the IRS unveiled a two-year postponement for the enforcement of SECURE 2.0’s mandatory Roth catch-up rule. This welcomed announcement delivers a sense of reprieve for individuals and employers impacted by the impending regulation. The rule, which stipulates that catch-up contributions to retirement plans must be classified as after-tax Roth contributions for those with prior-year Social Security wages surpassing $145,000, was originally slated to become effective on January 1, 2024. However, thanks to the IRS’ new guidance presented in Notice 2023-62, the rule’s activation will now be postponed until January 1, 2026.

One of the most significant implications of the rule delay is the respite it offers to both retirement savers and employers. The Roth catch-up rule under SECURE 2.0 brought about substantial concern among plan sponsors, who were apprehensive about the level of preparation required for its seamless integration into their existing systems. The postponement provides these sponsors with additional time to strategize, adapt, and execute necessary changes without being subjected to the looming deadline of 2024.

In addition to addressing the postponement, Notice 2023-62 also rectified an unintentional drafting error that had crept into the SECURE 2.0 legislation. This error had the potential to eliminate all age-50 catch-up contributions after December 31, 2023. The IRS’ clarification explicitly states that age-50 catch-up contributions will, in fact, remain permissible going forward. This clarification eases concerns held by individuals close to the age of 50, ensuring that they can continue planning for their retirement with the security of knowing these contributions remain an option.

Prior to this announcement, it appeared that any extension to the rule’s enforcement was improbable. The newly granted reprieve allows plan sponsors, retirement professionals, and individuals to better navigate this transition with enhanced clarity and ample time for preparation.

To access the complete IRS notice detailing these updates, interested parties can find the information readily available here. Contact your KPM advisor with questions.

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