The IRS announced proposed regulations reflecting changes from the SECURE 2.0 Act of 2022, including increased catch-up contribution limits for individuals ages 60-63 and a requirement for certain high earners to make catch-up contributions as Roth contributions starting in 2026.

Increased catch-up contributions limit for certain individuals

Under Internal Revenue Code Section 414(v), a Section 401(k) plan, a Section 403(b) plan, or a Section 457(b) governmental plan may (not required) provide for elective deferral contributions in excess of the annual elective contribution deferral limit for participants who attain age 50 by the end of the calendar year in which the plan year ends (catch-up contributions). The catch-up contributions limit for 2025 is $7,500 (the amount is subject to COLA-based increases).

Effective for 2025, a participant under a plan that provides for catch-up contributions and who attains age 60, 61, 62, or 63 during the year will have an increased catch-up contribution limit equal to 150% of the regular catch-up contribution limit in place for that year. (For 2025, $7,500 x 150% = $11,250, resulting in an additional $3,750.)

Roth treatment will be required for certain catch-up contributions

Effective for 2026, all catch-up contributions made by a participant who had more than $145,000 of FICA wages (this amount will be subject to COLA-based increases) from the employer sponsoring the plan (however, not determined on a controlled group basis – each employer in the controlled group would be treated separately for purposes of the preceding year wage requirement) for the immediately preceding calendar year, must be treated as Roth contributions. In this regard, the plan must specify that any such participant may elect to make catch-up contributions as Roth contributions. This means that:

• The catch-up contribution amount will not be excludible from the participant’s gross income.
• The plan must provide for a ROTH account.

Because the requirement is based on FICA wages, it would not apply to an individual who did not have any FICA wages from the employer sponsoring the plan for the immediately preceding year, including:

• A self-employed individual (e.g., a partner who pays SECA tax). 
• Certain state or local government employees.
• An employee who was subject to FICA tax in an earlier year on unpaid deferred compensation under the Section 3121(v) “special timing rule.”

What does CohnReznick think?

The opportunity to make additional catch-up contributions for individuals ages 61-63 is an additional opportunity for retirement savings that should not be missed by any plan participant who can afford to make them. As the government is seeking means of obtaining tax revenues to offset other tax benefits being provided, the upcoming requirement for certain individuals that their catch-up contributions must be Roth contributions is a step in that direction. Some professional practitioners have suggested that we may see future legislation requiring the use of Roth employee contributions to an even greater extent, perhaps even for all elective deferral contributions.