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IRS Extends Transition Period for New Roth Catch-Up Contribution Requirement

IRS Extends Transition Period for New Roth Catch-Up Contribution Requirement

In a recent announcement, the Internal Revenue Service (IRS) has extended the administrative transition period for the new Roth catch-up contribution requirement.

This decision comes as a relief to many taxpayers, especially those nearing retirement.

The extension will now last until 2026, providing ample time for individuals and financial institutions to adjust.

Key Takeaways:

  1. Extended Transition Period: The IRS has granted an extension, pushing the transition period to 2026.
  2. Catch-Up Contributions for Seniors: Individuals aged 50 and above can continue making catch-up contributions post-2023, irrespective of their income.
  3. Notice 2023-62: This notice, now available on the IRS website, provides preliminary guidance on the SECURE 2.0 Act.

Deep Dive into the New Roth Catch-Up Contribution Rule

Starting from 2024, a new rule will be in effect concerning Roth catch-up contributions. This will be applicable to employees participating in retirement plans such as 401(k), 403(b), or governmental 457(b).

Notably, this rule targets those whose prior-year Social Security wages exceeded $145,000.

Purpose Behind the Extended Transition

The primary objective behind this extended transition period is to ensure a smooth transition for taxpayers. The IRS recognizes the challenges and complexities of adjusting to new financial regulations.

By extending the transition period, they aim to provide taxpayers with adequate time to understand and comply with the new requirement.

Clarifications on the SECURE 2.0 Act

The IRS has taken steps to clear any ambiguities surrounding the SECURE 2.0 Act. The act does not, in any way, restrict plans from allowing catch-up contributions.

This means participants aged 50 and above can confidently continue with their catch-up contributions even after 2023.

Looking Ahead - Future Guidance and Public Participation

The Treasury Department, in collaboration with the IRS, has plans to release more comprehensive guidance to further assist taxpayers. The current notice outlines several positions expected to be included in future announcements.

Additionally, in a move to promote transparency and public participation, the notice is open to public feedback. The IRS has provided clear instructions on how individuals can submit their comments and suggestions.

Bottom Line

The IRS's decision to extend the transition period showcases their commitment to ensuring taxpayers have ample time to adjust to new regulations.

With clear guidelines and open channels for feedback, the IRS is taking proactive steps to ensure a smooth transition for all.

Source: IRS Official Announcement

Ines Zemelman, EA
Founder of TFX