SECURE 2.0 catch-up contributions: What advisors and plan sponsors need to know

The age the participant will turn in the calendar year determines their eligibility for the Super Catch-Up contribution. For example, if a participant will turn 60 at any point in 2025, they would be able to make a Super Catch-Up contribution in 2025. For participants turning 64 in 2025, a Super Catch-Up contribution would not be allowed in the year.

The provision is optional, and if you are a plan sponsor, giving participants an opportunity to save more for retirement is a positive benefit. It can be especially helpful as participants ages 60-63 tend to be more engaged about their retirement. It is important to note that adding the Super Catch-Up provision could be a potential administrative burden. It could take time and resources to implement the provision and manage a new group of participants with additional contributions. This is especially true if you work with a small payroll provider or if you do payroll in-house. If you are thinking of adding Super Catch-Up to your plan(s), it is best practice to check with your payroll provider to ensure that they can administer Super Catch-Up and are ready to do so. Your payroll system must be able to apply different contribution limits for participants ages 60-63.

The second catch-up contribution provision is mandatory Roth Catch-Up contributions. Originally, this provision was set to be effective January 1, 2024. Administrative complexities pushed the effective date to January 1, 2026. This has given recordkeepers, payroll providers, and plan sponsors more time to get their systems and procedures ready for the provision. The provision requires participants who make $145,000 or more in FICA wages to make all catch-up contributions Roth. This applies to both traditional catch-up contributions and Super Catch-Up contributions.

One worry that some plan sponsors have is how they would correct the mistake of accidentally making a participant’s catch-up contribution pre-tax when it should have been Roth. One way to fix this is by modifying the participant’s W-2. However, this method can only be used if the W-2 has not been issued yet.

The other correction involves the plan sponsor converting pre-tax dollars to Roth through an in-Plan Roth Conversion. Adding in-Plan Roth Conversions to your plan can be helpful if one of these corrections is needed in the future. Separately from allowing in-Plan Roth Conversions to aid in these corrections, participants who wish to convert their previous pre-tax contributions to Roth dollars sometimes do not understand the tax consequences of doing so. This can require additional participant education.

Another nuance of mandatory Roth Catch-Up contributions is that if a participant does not earn FICA wages, the participant will not be subject to this provision. If you have participants who do not earn FICA wages, they will not be subject to mandatory Roth on their catch-up contributions. It is important to note that this interpretation is based on the current state of the regulation, and we are awaiting final guidance on the issue.

Rumors of SECURE 3.0 have begun to circulate. Buttoning up your internal processes and working with your providers to ensure smooth administration of these two catch-up contribution provisions will be helpful as we gear up to tackle potential new regulations that may come our way.