Key Takeaways
- Prior to the SECURE Act 2.0 all older participants, regardless of compensation level, could deduct their catch-up contributions.
- However, under the new law—beginning in 2024—participants who earn more than $145,000 will only be able to make Roth catch-up contributions.
- As a result, those catch-up contributions will be taxable to those participants, but the contributions will not be taxable when withdrawn, and if held for the qualifying period, the earnings will not be taxable either.
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article discusses one of the mandatory provisions that becomes effective in 2024…catch-up contributions for higher compensated employees must be treated as Roth contributions.
