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January 5, 2024

Illuminating the evolution of Roth contributions post-SECURE 2.0 Act

Frank Bitzer

Watch the video for more on this topic.

The SECURE 2.0 Act made an important change to qualified 401(k) and 403(b) plans regarding catch-up contributions. Originally scheduled to be effective January 1, 2024, highly compensated individuals earning over $145,000 annually (adjusted annually for cost of living) during the prior calendar year are required to make their catch-up contributions as a post-tax Roth contribution. That effective date has been pushed back two years, as we will discuss.

Plan sponsors must evaluate their plan’s document and determine if an amendment is required to adopt language permitting Roth catch-up contributions. If the plan sponsor allows highly compensated employees to make catch-up contributions and the plan language does not expressly permit Roth after-tax catch-up contributions, an amendment adopting this provision will be necessary.

This provision regarding Roth catch-up contributions for highly compensated employees is not mandatory; it is up to the determination of each plan sponsor. Although it is mandatory for highly compensated participants, an amending provision may not be limited to them. Roth catch-up contributions must be extended to all catch-up eligible participants.

Catch-up contributions are a type of retirement plan contribution for participants aged 50 or older that permits them to defer additional earnings into their individual account beyond the annual 402(g) deferral limit or plan limit. They are intended to assist older workers in “catching up” on asset accumulations where they may have started saving for retirement later than most or may have deferred in earlier years in lower amounts. For 2024, the additional amount catch-up eligible participants may defer into their account balance is $7,500.

Contact your Marsh McLennan Agency retirement plan advisor to learn about SECURE 2.0 Act and how it affects your organization.