New SECURE 2.0 provisions for catch-up contributions require that those contributions to 401(k), 403(b) and 457(b) plans made by certain higher-income participants be designated as after-tax Roth contributions. This provision should have become effective in 2025, however, the Internal Revenue Service extended the SECURE 2.0 provision until 2026.
Pre-SECURE 2.0, retirement plans had been permitted to allow participants ages 50 and older to make "catch-up" contributions beyond the standard elective deferral limit. However, the new SECURE 2.0 provision requires that "high earners" make Roth catch-up contributions.
SECURE 2.0 now requires that catch-up contributions made by certain catch-up eligible participants for the preceding calendar year from the employer sponsoring the plan must be designated Roth contributions to simplify plan administration. Specifically, plan participants earning $145,000 or less must still have the option of making traditional catch-up contributions.
Now, the American Institute of CPAs (AICPA), the largest member association representing the CPA profession, is requesting additional guidance related to catch-up contributions designated as Roth contributions within SECURE 2.0, in a letter submitted to the Department of the Treasury and the IRS.
“The AICPA recommends that Treasury and the IRS provide a safe harbor permitting all plan administrators to rely on wage information as reported on Forms W-2 when determining whether employees have exceeded the catch-up wage threshold for purposes of the Roth Mandate,” reads the letter from Cheri Freeh, CPA, CGMA Chair, AICPA Tax Executive Committee.
If such a safe harbor is unable to be adopted, “we suggest that Treasury and the IRS provide specific guidance for scenarios involving predecessor-employers, and other third-party arrangements (e.g., common paymasters, professional employer organizations, and certified professional employer organizations) … for purposes of determining which employees are subject to the Roth Mandate.”
Additionally, the AICPA recommends that “Treasury and the IRS articulate a position on whether a disregarded entity is treated as a separate ‘employer sponsoring the plan,’” according to the letter. A disregarded entity – which typically have a single owner – is a business entity that is not considered separate from its owner for federal income tax purposes.
Related: New SECURE 2.0 auto-enrollment and 401(k) catch-up provisions: IRS issues guidelines
“Post-SECURE 2.0, employers and plan administrators will need clear guidance to ensure compliance of the law regarding Roth-mandated catch-up contributions,” says Kristin Esposito, AICPA Director, Tax Policy & Advocacy. “Our recommendations to the regulations proposed by Treasury and the IRS, if adopted, will make it easier for plan administrators to implement the law.”
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