Pausing enforcement of a mandate that high-income earners must make catch-up contributions only on a post-tax basis gives Congress and Treasury time to better explain and simplify the process, says our partner Carol Buckmann in an op-ed article for Bloomberg Tax Insights and Commentary.
Here are some excerpts from the article:
The IRS provided an opportunity last week to provide much-needed clarity on retirement savings when it delayed enforcement of a new law requiring workers earning more than $145,000 a year to make catch-up contributions only on a Roth (after-tax) basis.
The enforcement delay, to 2026, came after lobbying efforts by the benefits community and retirement plan sponsors , urging the IRS for more time to prepare for the changes under the SECURE 2.0 Act. The requirement applies to 401(k) plans, tax-deferred annuities under Section 403(b), and governmental plans described in Section 457(b).
Because there was no precedent for the new requirement, questions abounded about how to implement it. They included whether it covers self-employed individuals who don’t pay federal payroll taxes, how best to apply the provisions in plans covering unrelated employers, what elections are required of affected participants, and whether plan sponsors could require that all catch-up contributions be made on a Roth basis.
Given that the changes were to take effect Jan. 1, 2024, the IRS heeded calls for a delay and created a two-year “administrative transition period.” This means that before Jan. 1, 2026, plans without Roth options can continue allowing catch-up contributions, and plans with current Roth provisions can keep Roth catchups optional.
Additional time also gives Congress a chance to simplify compliance with Section 603 and to make it more uniform.
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Reproduced with permission. Published August 30, 2023. Copyright 2023 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright/