The IRS initially postponed the implementation of the new reporting requirement for Forms 1099-K by one year.
The agency has established an administrative transition period for the SECURE 2.0 Act’s catch-up contribution requirements.
Older, higher-income 401(k) members must now make their catch-up contributions into after-tax Roth accounts rather than pre-tax traditional accounts, following this new rule.
Congress initially planned for this provision to go into effect in 2024, but in response to pleas from employers, the IRS extended the deadline until 2026.
The SECURE 2.0 Act makes several amendments to current law, was passed as a component of the Consolidated Appropriations Act of 2023, and is seen as a follow-up to the retirement-focused legislation of 2019. Several important clauses include:
Employers must automatically enroll eligible employees in new retirement plans established after December 29, 2022, with some exceptions for smaller businesses and specific organizations beginning in 2025.
Employers can alter current plans to provide employees with vested matching contributions to Roth accounts, going beyond pre-tax matching.
RMDs (Required Minimum Distributions): New RMD regulations have been implemented, and the IRS has provided guidelines to explain these modifications.
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Qualified Charitable Distributions: Starting in 2023, changes to the eligible charitable distribution regulations will make it possible for people aged 7012 or older to make donations from their IRAs more efficiently.
Student Loans: SECURE 2.0 addresses the conflict between preparing for retirement and repaying student loans by allowing companies to match employee contributions to retirement plans.
529 Plans: Beginning the next year, a new rule will permit the penalty-free rollover of unused 529 plan money into a Roth IRA.
During the changeover phase, the main focus is older employees’ catch-up contributions—amounts above regular caps—to their retirement accounts.
According to the law, higher-income participants (those who earned above $145,000 in the prior year) must make their catch-up contributions to after-tax Roth accounts rather than pre-tax regular accounts.
This issue is addressed in the most recent IRS notice, which offers relief and flexibility.
The IRS states in Notice 2023-62 that, up to 2026, catch-up contributions, even if they are not classified as Roth contributions, will be regarded as satisfying the requirements of section 414(v)(7)(A).
As a result, plans can continue to accept pre-tax catch-up contributions from participants with higher incomes through the end of 2025.
The notification also fixes a legal mistake, guaranteeing that after 2023, people over 50 can still pay catch-up contributions regardless of their income.
With the adoption of SECURE 2.0, the retirement planning landscape is changing, and the IRS’s deliberate approach to shifting assures a more seamless adjustment for taxpayers, planners, and administrators alike. The additional time the IRS provides will enable effective compliance with these essential changes, further guidance for which is anticipated.