The Internal Revenue Service (IRS) has released proposed regulations (REG-101268-24) providing guidance on retirement plan catch-up contributions, reflecting changes introduced by the SECURE 2.0 Act of 2022. These regulations, which amend 26 CFR Part 1, primarily affect retirement plans under IRC Sections 401(k), 403(b), and 414(v). The proposed rules introduce new requirements for Roth catch-up contributions and changes to applicable dollar limits. This article will analyze these proposed regulations, citing relevant legal and regulatory authorities to provide a comprehensive understanding.

Statutory Authority and Background

The proposed regulations are issued under the authority of several sections of the Internal Revenue Code (IRC). Section 401(m)(9) authorizes the Secretary to prescribe regulations necessary to carry out the purposes of subsections 401(k) and 401(m). A specific delegation is found in section 414(v)(7)(D), allowing the Secretary to issue regulations regarding changes to catch-up elections. Section 7805(a) provides the general authority for the Secretary to prescribe rules and regulations necessary for the enforcement of the Code.

The foundation of catch-up contributions lies in IRC Section 414(v), which permits eligible participants to make additional elective deferrals to applicable employer plans. Applicable employer plans include qualified plans under section 401(a), annuity contracts under section 403(b), eligible deferred compensation plans under section 457, SEP arrangements under section 408(k), and SIMPLE IRA plans under section 408(p). An eligible participant is generally one who will be age 50 or over by year-end and is limited by some other applicable restriction. These catch-up contributions are generally not subject to certain otherwise applicable limitations. The SECURE 2.0 Act of 2022 introduced significant modifications to these catch-up rules through sections 109, 117, and 603.

Key Changes Introduced by the SECURE 2.0 Act

Increased Catch-Up Limits for Ages 60-63 (Section 109): For taxable years after 2024, the applicable dollar catch-up limit is increased for participants who attain ages 60, 61, 62, or 63 during the year. For plans other than SIMPLE plans, the increased limit is 150% of the 2024 limit, with cost-of-living adjustments for years after 2025. For SIMPLE plans, the increased limit is 150% of the 2025 limit, also with cost-of-living adjustments for subsequent years. Specifically, for 2024, the increased limit for non-SIMPLE plans is $11,250 (150% of $7,500), and for 2025, the increased limit for SIMPLE plans is $5,250 (150% of $3,500). These limits are subject to cost of living adjustments.
Increased Catch-Up Limits for Certain SIMPLE Plans (Section 117): For taxable years after 2023, certain SIMPLE plans sponsored by employers with 25 or fewer employees can automatically apply a higher catch-up limit, while other eligible employers can make an election for the increased limit. The increased limit is 110% of the 2024 limit, adjusted for cost of living after 2024. Specifically, the increased limit for 2024 is $3,850 (110% of $3,500).
Roth Catch-Up Requirement (Section 603): This is perhaps the most complex change. For participants whose prior year FICA wages from the plan sponsor exceeded $145,000, catch-up contributions must be designated Roth contributions. This requirement does not apply to SEP or SIMPLE IRA plans. The wage threshold is subject to cost-of-living adjustments for years after 2024. If any participant is subject to the Roth catch-up requirement, the plan must allow all catch-up eligible participants to make Roth catch-up contributions. The regulations clarify that this requirement applies based on the common law employer contributing to the plan, not controlled group rules. This provision is set to apply to taxable years beginning after December 31, 2023.

Proposed Regulatory Implementation

The proposed regulations provide specific rules to implement these statutory changes.

Deemed Roth Election: The proposed regulations permit plans to treat a participant’s pre-tax election as a deemed Roth election if the participant is subject to the Roth catch-up requirement, provided the plan allows for a subsequent election to change this. This deemed election is incorporated into regulations for both 401(k) plans (proposed §1.401(k)-1(f)(5)(iii)) and 403(b) plans (proposed §1.403(b)-3(c)(1)).
Increased Catch-Up Limits: The proposed regulations outline specific dollar amounts for increased catch-up limits based on the participant’s age and the type of plan, reflecting the changes from sections 109 and 117 of the SECURE 2.0 Act. The cost of living adjustments for each limit are also addressed.
Universal Availability: The proposed regulations clarify that a plan does not fail the universal availability requirement under Section 414(v)(4) merely because it utilizes the increased catch-up limits for those ages 60 to 63. Furthermore, the regulations allow plans to preclude some HCEs who are not subject to the Roth catch-up requirement (for example, they did not receive FICA wages from the employer in the prior year) from making catch-up contributions to avoid discrimination issues.
Roth Catch-Up Rules: Proposed §1.414(v)-2 details the implementation of the Roth catch-up requirement. It clarifies that if a participant’s prior year FICA wages (as defined by section 3121(a)) from the employer sponsoring the plan exceed $145,000, any catch-up contributions must be designated Roth contributions. The regulations also clarify that this determination is based on the FICA wages of the common law employer.
Correction Mechanisms: The proposed regulations establish correction methods for plans that fail to satisfy the Roth catch-up requirement for pre-tax contributions, including Form W-2 corrections and in-plan Roth rollovers. A plan can correct an error by transferring the pre-tax deferral (adjusted for gains or losses) to the participant’s Roth account and reporting it on the Form W-2 as a Roth contribution. Or, the plan can correct an error via an in-plan Roth rollover, with the amount rolled over includible in income in the year of the rollover. These correction methods also have deadlines, which are generally consistent with existing deadlines to correct other contribution errors. Plans must also have procedures in place to ensure compliance with the Roth catch-up rule to use the new correction methods, including a deemed Roth election feature.

Applicability Dates

The proposed amendments to §1.414(v)-1 will apply to contributions made in taxable years more than 6 months after the final regulations are issued. However, taxpayers can elect to apply the increased catch-up limits for certain SIMPLE plans (section 117) to taxable years after December 31, 2023. Taxpayers can also elect to apply the increased catch-up limits for those ages 60 to 63 (section 109) to taxable years after December 31, 2024. For plans not maintained under a collective bargaining agreement, proposed §1.414(v)-2 and the amendments to sections 1.401(k)-1 and 1.403(b)-3 are set to apply to contributions in taxable years beginning more than six months after the date that the final regulations adding §1.414(v)-2 to the Code of Federal Regulations are issued. There is also a special rule for collectively bargained plans, with delayed application, that is outlined in the proposed regulations. However, plans are permitted to apply these rules for taxable years beginning after December 31, 2023.

Request for Comments

The IRS and Treasury Department have requested comments on various aspects of these regulations, including the treatment of employees who work in both Puerto Rico and the United States, and scenarios when a W-2 is later found to be incorrect, among other issues. A public hearing is scheduled for April 7, 2025.

Analysis of proposed regulations conducted with assistance from NotebookLM.

Text of the proposed regulations can be downloaded from https://public-inspection.federalregister.gov/2025-00350.pdf