To the relief of many plan sponsors and employers, the IRS last week announced an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher-income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions. The agency also clarified that plan participants who are age 50 or older can continue to make catch- up contributions after 2023, regardless of income.

The extension will help taxpayers smoothly adjust to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement, the IRS said.

A large number of retirement industry organizations had called for the government to delay the key SECURE 2.0 change that was set to begin on Jan. 1, 2024, and that would have caused many 50-and-older retirement plan participants to lose the ability to make catch-up contributions. More than 200 Fortune 500 companies, firms and public employers, including the American Retirement Association, Chipotle Mexican Grill, Fidelity Investments, Charles Schwab, Microsoft and Delta Air Lines, asked Congress for a two-year delay to the Roth catch-up rule to 2026. One reason is that new payroll systems and administrative work will be needed, which many employers believe couldn't be implemented in time to allow participants to make Roth catch-up contributions next year.