The Consolidated Appropriations Act of 2023 (CAA of 2023) modified the catch-up contribution rules applicable to tax qualified retirement and savings plans such as 401(k), 403(b) and governmental 457(b). As a reminder participants aged 50 and older can make additional (catch up) contributions to certain plans. The CAA of 2023 provided as follows:

• Require catch-up contributions made by participants with more than $145,000 in prior-year FICA wages from the employer sponsoring the plan be made on a Roth (after-tax contributions) basis beginning January 1, 2024.
• If a plan offers catch-up contributions and has affected participants subject to the new requirement, the plan must also offer all catch-up eligible participants – those who will be age 50 or older in a given year – the ability to make catch-up contributions on a Roth basis.

Due to some legislative drafting issues some clarification is needed. The IRS Issued pronouncement 2023-62 to state that the new catchup rules will not apply until 2026.Giving time for government agencies to clarify the standards.

Although the effective date was not expressly delayed, the Notice does provide a two-year transition period to ensure a smooth transition for compliance with the new provisions.  Until tax years beginning after December 31, 2025:

• Catch-up contributions made by affected participants will be treated as compliant, even if they are not made on a Roth basis.

• Plans that do not currently offer a Roth contribution option will be treated as compliant, without the need to add a Roth option at this time.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.