Starting in 2025, a new special catch-up contribution is permitted for taxpayers who are between ages 60 and 63.  That contribution limit will be equal to the greater of (1) $10,000 or (2) 150% of the standard catch-up contribution limit for 2024.  The $10,000 limit will also be indexed for inflation.  Once the taxpayer reaches age 64, the regular (lower) catch-up contribution limit applies.

Presumably, to take advantage of the special increased catch-up contribution, high-income employees must also be given the Roth option.

Need-to-know for plan sponsors on the new Roth rules

For employers who wish to offer their employees who earn more than $145,000 annually a catch-up contribution option, they must first contact their plan recordkeeper to request the changes.  Unfortunately, it can sometimes take months for an amendment to be processed and implemented by the recordkeepers.

Some plan recordkeepers also limit the number of changes and amendments that they will process in any given year because of staffing constraints.  Given the number of employers who will be interested in amending their plans to permit Roth catch-up contribution options this year, it's important to act early to avoid delays.

Employers must also communicate the changes regarding catch-up contributions to their employees.  Further, these employees will be required to update payroll systems to accommodate the Roth contribution changes for high-income employees.

There are also many issues that employers will have to grapple with as the new program is implemented.  For example, it's unclear whether employers may only allow Roth catch-up contributions, as opposed to regular Roth contributions by employees.  It's also uncertain whether employers can continue to offer catch-up contributions to lower-income employees without providing the Roth catch-up contribution option for high-income employees.

Some employers also take advantage of the ability to recharacterize regular contributions made in excess of the annual deferral limits as catch-up contributions.  With the new Roth mandate for high-income taxpayers, it's unclear whether employers will be entitled to continue to do so.

Related: SECURE 2.0: Plan sponsors, check off mandatory provisions first, then new options

Many questions about the Roth catch-up contribution mandate still remain.  However, that does not mean that small business clients should wait to act when it comes to requesting amendments to permit a Roth option for higher-income employees.  The ability to make catch-up contributions (and special catch-up contributions) is a valuable employment benefit, and employers should begin evaluating their options today.

Prof. Robert Bloink has taught at the Texas A&M University School of Law and the Thomas Jefferson School of Law. Prof. William H. Byrnes is an executive professor and associate dean of special projects at the Texas A&M University School of Law. Bloink and Byrnes are also co-authors of Tax Facts, a reference solution that helps to answer critical tax questions and provides the latest tax developments.