Take-Away: In recent IRS Notice 2023-62, the IRS delayed the SECURE Act 2.0 requirement that some catch-up 401(k) contributions be Roth catch-up contributions, i.e. made with after-tax dollars, until 2026. There were a couple of other ‘clarifications’ included in that Notice that answered a few lingering questions with regard to this surprising new rule, albeit delayed only until 2026.

Background: The IRS responded to criticism from lobbyists that the new rule created by the SECURE Act 2.0 to require make-up contributions to 401(k) plans by higher-compensated individuals be Roth contributions. The primary complaints were that the 2024 start date was too soon for plan sponsors be get ready for this fundamental change. The Notice results in a delay that implements this new rule from 2024 until 2026 in order to permit plan sponsors to amend their qualified plans and ready their record-keeping responsibilities. The IRS also took the opportunity in Notice 2023-62 to answer a couple of other questions that arose after the SECURE Act 2.0 was enacted with this new, revenue-generating, Tax Code provision.

Wages vs. Self-Employed: This new rule with regard to Roth catch-up contributions mandates that it only applies to wages that are earned by the plan participant in the prior year that exceeds $145,000. However, self-employed individuals have self-employment income, not wages. If a self-employed individual’s income exceeds the $145,000 limit in the prior year, he/she will not be required to make their catch-up contributions on a Roth-only basis. Only those high-paid employee-participants with actual wages in excess of $145,000 will be subject to this mandatory Roth catch-up requirement.

Social Security Wages: The IRS confirmed that wages means wages that are subject to FICA, meaning the amount that is reported on Box 3 (not Box 1) of Form W-2.

Multiple Employer Sponsors: Some 401(k) plans are sponsored by more than one employer. What if a participant has wages in the prior calendar year from more than one sponsoring employer? Are his/her wages aggregated for purposes of the $145,000 dollar limit? The IRS says no, there is no aggregation of earned wages in calculating the $145,000 limit.

Example: Ajax and Beta both sponsor the same 401(k) plan. Charlie is a participant in the plan. The SECURE Act 2.0 mandates that, starting in 2026, a plan participant like Charlie with 2025 wages in excess of $150,000 (since the $145,000 wage amount in the SECURE Act 2.0 for 2024 is tied to cost-of-living escalator) will be subject to the wage limit. Charlie changed jobs from Ajax to Beta in 2025. He had $100,00 wages from Ajax and he earned $125,000 in wages from Beta after his job change. Charlie, now an employee of Beta in 2026, will not be subject to the Roth catch-up mandate because only his 2025 Beta wages ($125,000) will be used to determine his eligibility to make a pre-tax catch-up contributions to the 401(k) plan (not Charlie’s combined wages in 2025 of $225,000.)

Plan Sponsor Opt-Outs: Some 401(k) qualified plans do not offer a Roth contribution feature. Those same plan sponsors may not want to add that feature to their 401(k) plan due to the increase in record-keeping responsibilities. Can the sponsor’s 401(k) plan continue to refuse to offer Roth contributions, or limit catch-up contributions solely to lower-paid plan participants, which contributions would continue to be made with pre-tax dollars? Or, will the plan sponsor be forced to eliminate any catch-up contributions for all of its participants? The IRS did not answer these questions. Instead, it solicits comments from the public before it will provide future guidance on these questions.

Conclusion: I think the IRS will require all qualified plans that have a catch-up contribution feature to include Roth catch-up contributions for higher-paid employees. This would be consistent with Congress’s apparent intent to: (i) encourage employees to save for their own retirement, since there does not seem to be a strong commitment in Congress to stabilize Social Security through higher SSI contributions; and (ii) the Roth catch-up contribution mandate is intended to generate tax revenues to off-set the claimed costs of other tax breaks found in the SECURE Act 2.0.