IRS Proposes Regulations Governing Retirement Plan Catch-Up Contributions Under SECURE 2.0

On Friday, January 10, 2025, the Internal Revenue Service released its proposed regulations (REG-101268-24) on catch-up contributions to employer-sponsored retirement plans (specifically 401(k), 403(b), SEP and SIMPLE plans), with particular reference to the changes to such catch-up contributions enacted under SECURE 2.0, signed into law as part of an omnibus package by President Biden on December 29, 2022.
The provisions of SECURE 2,0 were effective beginning January 1, 2023, but, per IRS prior guidance, the tax years 2023 and 2024 were considered “transitional,” and many provisions will be enforced for the first time in 2025.
Key highlights include:
Roth-Only Catch-up Contributions
For employer-sponsored 401(k) and 403(b) plans with participants earning over $145,000 in FICA wages during a given year, any catch-up contributions by those over 50 must be made via Roth contributions in after-tax dollars. The earnings threshold will be adjusted for inflation going forward.
However, such plans are not required by law or by the proposed regulations to offer such a Roth option.
The proposed regulations clarify that an employer-sponsored 401(k) or 403(b) plan need not offer Roth contribution options to participants. However, if a plan does not offer a Roth option, those participants who earn over the Roth-only catch-up threshold will be ineligible to make any catch-up contributions to their accounts, even if they are eligible on all other scores. Eligible participants earning less than that threshold may make catch-up contributions in pre-tax dollars.
Further clarification comes into play with earnings tied specifically to FICA salary/wages. An employer may choose to compensate a high-earning employee in other ways than FICA salary/wages. If a retirement plan participant receives compensation over the Roth-only catch-up threshold, but that compensation is not in the form of FICA earnings, the Roth-only catch-up contribution limitation will not apply.
In addition, for those who work for two or more employers and participate in more than one employer-sponsored retirement plan, the Roth-only catch-up threshold applies only to the earnings from each employer, not the participant’s aggregate earnings from all employers. It is, therefore, possible, under such a scenario, for an individual to earn over $145,000 in aggregate without triggering the Roth-only catch-up requirement.
It’s important to remember, though, that catch-up contributions, like all contributions to similar plans, are subject to the contribution limits governing plan type(s).
For example, the 2025 limit on contributions to 401(k) and 403(b) plans is $23,500, with a catch-up of $7,500 permitted for those over age 50. For those aged 60 to 63, the allowable catch-up increases to 150% of the otherwise available catch-up, indexed to the 2024 catch-up limit of $7,500 (this amount is unchanged for 2025) – or $11,250 – but if an employee participates in both types of plan, either with a single employer or more than one, contributions to both plans, including catch-ups, can amount to no more than $34,750 (for those between ages 60 and 63).
SIMPLE Plans
A Savings Incentive Match Plan for Employees (SIMPLE) can be either an IRA plan or a 401(k) plan.
For a SIMPLE 401(k) plan, as with any other 401(k), the participant may, but is not required to, elect to defer compensation. But for a SIMPLE 401(k), the employer must make fully-vested contributions of either:
- A matching contribution of up to 3% of each employees pay, or
- A non-elective contribution of 2% of each eligible employee’s pay.
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For both SIMPLE 401(k)s and SIMPLE IRAs, the 2025 contribution limit is $16,500, plus a catch-up of $3,500 for those over age 50. For 2025, there is again an additional catch-up available to those between ages 60 and 63. For these participants, this increased catch-up is the greater of:
- $5,000, or
- 150% of the 2025 over-50 catch-up limit, which comes to $5,250.
Note that while for employer-sponsored plans other than SIMPLE plans, the additional catch-up is based on the 2024 catch-up limits, SIMPLE plans use 2025’s limit. For the moment, this is a distinction without a difference, as the IRS did not increase the 2024 catch-up limits for 2025.
Of course, the proposed regulations contain much more than we have highlighted – predictably, this includes increased paperwork requirements for plan administrators.
There are special proposals that would govern the timing of the applicability of the final regulations for employer-sponsored retirement plans subject to collective bargaining agreements.
Not all the proposed regulations have even been articulated yet in REG-101268-24.
The IRS will hold a public hearing to discuss the proposed regulations at 10:00 AM on April 7, 2025. Written submissions must be received by the IRS no later than March 14, 2024. Telephone access to the hearing will be available. Notice of intent to participate in person must be received by the IRS by April 3, 2025.
If you are concerned about the impact of these regulations on your business or your retirement planning, please click here to email us directly – Rigby Financial Group’s experts are here to help!
Until next time –
Peace,
Eric