Catch-Up Contribution Changes: Are you Caught Up?

The SECURE 2.0 Act of 2022 made significant changes to retirement plans, some of which became effective immediately and others that have gradually become effective in recent years.  Two of the changes that recently became effective were the increased catch-up contribution limits for participants ages 60 to 63, and the requirement that certain catch-up contributions for high earners be designated as Roth.

As background, catch-up contributions apply to employees who (1) have attained age 50; and (2) participate in a 401(k), 403(b), governmental 457(b), or SIMPLE plan that allows catch-up contributions.  Catch-up contributions allow employees who are approaching retirement age to defer additional compensation beyond the standard annual contribution limits.  The IRS recently issued proposed regulations to amend the rules governing catch-up contributions and to reflect the changes made by SECURE 2.0.

General Contribution Limits

In 2025, the standard contribution limit is $23,500.  The standard catch-up limit for participants who have reached age 50 is $7,500, making the total annual contribution limit for participants who have reached age 50 $31,000 in 2025.  Catch-up contributions can generally be made on a pre-tax or Roth basis, as elected by the participant (and as permitted by the plan).

“Super” Catch-Up Contribution Limits

SECURE 2.0 increased the catch-up contribution limits for individuals who reach age 60, 61, 62, or 63 to the greater of: $10,000 (indexed for inflation), or 50% more than the regular catch-up limit in effect for 2024 (i.e., $11,250: 150% of the $7,500 limit in 2024).  The statutory language is clear that these “super” catch-up contributions only apply to individuals who reach age 60, 61, 62, or 63, starting in 2025.  Unfortunately, this means that individuals who will reach age 64 in 2025 are not eligible for the super catch-up contributions.

Plans are not required to offer the super catch-up contributions, even if they offer standard catch-up contributions for participants who have reached age 50: the IRS’s proposed regulations clarify the super catch-up contributions are an optional plan provision.  Employers will accordingly need to amend their plans to permit these super catch-ups, if desired.

Roth Catch-Up Contributions

The IRS’s proposed regulations also address the requirement under SECURE 2.0 that participants with FICA wages exceeding $145,000 in the preceding calendar year (as adjusted for cost of living increases) must designate their catch-up contributions as Roth.  Further, plans may provide that participants who are subject to the Roth catch-up requirement are deemed to have elected that their catch-up contributions be designated as Roth.  The proposed regulations clarify that the Roth requirement does not apply to partners or self-employed individuals.

The proposed regulations also clarify that if a plan does not permit Roth contributions, then a participant who is subject to the Roth catch-up requirement cannot make catch-up contributions under the Plan at all.  Plans without Roth contributions will accordingly still need to carefully track which participants are subject to the Roth catch-up contribution requirements.

Fortunately, the IRS announced an “administrative transition period” that delays the implementation deadline of these Roth catch-up contribution requirements until at least 2026.  (For more information about the administrative transition period, click here.)  The IRS issued its proposed regulations in January and is accepting comments through March 14.  The Roth catch-up contribution requirements will involve significant administrative changes for plan administrators and third-party administrators, even for plans that do not permit Roth contributions.  The IRS is getting more creative in coming up with ways to encourage (or, in this case, require) Roth contributions…