IRS Finalizes Catch-Up Contribution Regulations: 

As discussed in the February 2025 edition of The Speed Reader, on January 10, 2025 the IRS published proposed regulations regarding certain provisions in the SECURE 2.0 Act of 2022 (“SECURE 2.0”). Under one of those provisions, catch-up contributions made by certain participants must be made as Roth contributions (the Roth catch-up requirement).

• Specifically, in the case of a catch-up eligible participant whose FICA wages for the preceding calendar year from the plan sponsor plan exceeded $145,000, catch-up contributions must be Roth contributions. (That $145,000 amount will be indexed for inflation.) The proposed regulations also reiterated the SECURE 2.0 requirement that if a plan has any participants who are subject to the Roth catch-up requirement, those plans must allow all catch-up eligible participants to make catch-up contributions as Roth contributions.

In addition, the proposed regulations discussed a SECURE 2.0 higher dollar catch-up limit for individuals attaining age 60, 61, 62, or 63. That limit is being referred to in the industry as the “super catch-up” limit, and it equals 150 percent of the otherwise applicable dollar catch-up limit. Thus, if allowed under a plan, that limit for 2025 equals $11,250.

On September 16, the IRS published final regulations in this regard. The final regulations modify the proposed regulations as follows:

• Under the proposed regulations, plans can provide that a participant who is subject to the Roth catch-up requirement is deemed to have irrevocably designated any catch-up contributions as designated Roth contributions. However, the application of a deemed Roth catch-up election to a participant would be conditioned on the participant having an effective opportunity to make a new election that is different than the deemed election. The final regulations clarify that the deemed election must cease to apply to an employee within a reasonable period of time following the date on which (1) the employee ceases to be subject to the Roth catch-up requirement; or (2) an amended Form W-2 is filed or furnished to the employee indicating that the employee is not subject to the Roth catch-up requirement.
• The IRS expects that plans’ terms will be made clear as to whether a reference to the regular catch-up contribution limit in the plan document includes the optional super catch-up limit for participants attaining age 60, 61, 62, or 63.
• Catch-up eligible participants attaining age 60, 61, 62, or 63 who are eligible to make  special section 403(b) catch-up contributions (if allowed under a 403(b) plan) can make those special contributions in addition to catch-up contributions.
• An in-plan Roth rollover that is elected by a participant may not be used to satisfy the Roth catch-up requirement. That is because the amount of the in-plan Roth rollover could be attributable to contributions other than elective deferrals.
• For failures to comply with the Roth catch-up requirement, the final regulations do not require that with respect to a plan year, a plan apply the same correction method for all participants with elective deferrals in excess of the same applicable limit. Instead, the final regulations provide flexibility by merely requiring that a plan apply the same correction method for similarly situated participants.
• The final regulations provide that, if a compliance issue arises with respect to an elective deferral that is a catch-up contribution because it exceeds a statutory limit, the deadline to complete all corrective steps in order to avoid a plan qualification failure is generally the last day of the tax year following the tax year for which the elective deferral was made.
• A failure to comply with the Roth catch-up requirement does not have to be corrected (in order for the elective deferral to be treated as a catch-up contribution), if the amount of the pre-tax elective deferral that was required to be a designated Roth contribution does not exceed $250.
• The final regulations generally apply with respect to contributions in taxable years beginning after December 31, 2026, but they do not extend or modify the administrative transition period provided under Notice 2023-62 (as discussed in the September 2023 edition of The Speed Reader). Under that transition period, until taxable years beginning after December 31, 2025, required Roth catch-up contributions are treated as satisfying SECURE 2.0 even if such contributions are not actually designated as Roth contributions.

The final regulations are complex, and their application to any specific fact situation should be reviewed carefully to ensure compliance.