Catch-up Contributions for High-Earning Retirement Savers: Delay Urged by 50 Organizations


Fifty organizations are advocating for the federal government to postpone the taxation of catch-up contributions for high-earning retirement savers, arguing that the implementation of this rule poses significant challenges.

Under the Secure 2.0 Act, a retirement-focused legislation passed last year, individuals aged 50 and above who earned $145,000 or more in the prior year will only be permitted to make Roth catch-up contributions starting from December 31, 2023. However, contributing on a Roth basis would subject them to immediate taxation. Currently, catch-up contributions can be made either before or after taxes, depending on the rules established by plan sponsors.

The American Retirement Association, Fidelity Investments, IBM Corporation, the Insured Retirement Institute, the U.S. Chamber of Commerce, as well as state and local retirement systems are among the prominent organizations that have written a letter to the Department of Treasury and the Internal Revenue Service expressing their concerns.

The letter emphasizes the “administrative hurdles” associated with implementing this rule and requests a delay until January 1, 2026. Plan sponsors must make accommodations for Roth contributions in their plans and have a system in place to determine if an employee earned at least $145,000 in the preceding year. Some employers may find it challenging to ascertain this information by January 1. Additionally, there are two methods for processing catch-up contributions, necessitating updates to recordkeepers’ systems.

“While plan sponsors, along with their payroll vendors and in-house payroll and service providers, are working towards implementing this provision, the many outstanding issues that require guidance from the Treasury are proving to be substantial obstacles to timely compliance,” states the letter. It further emphasizes that even with guidance, adapting to this change entails a significant undertaking that involves coordination among multiple parties and the development, testing, integration, and implementation of entirely new systems, which requires substantial time.

The organizations behind the letter urge the government to consider these challenges and provide the necessary guidance and sufficient time for compliance with this rule.

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