facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Mandatory Roth Catch-Up Rule Delayed Thumbnail

Mandatory Roth Catch-Up Rule Delayed

Retirement Funding Insights Taxes

By Ben Dolan, CFP®

Many savers above the age of 50, and retirement plan administrators, are breathing a sigh of relief following the release of IRS Notice 2023-62. The notice has pushed back, from Jan 1, 2024 to Jan 1, 2026, the requirement for those who 1) have wages greater than $145,000 in the previous year, and 2) are making catch-up contributions in their 401(k), 403(b) and 457(b) plans, to place those contributions in the Roth portion of their plan. By mandating the catch-up contributions to be placed in the Roth, the government is forcing savers to pay tax on the contribution. 

The ruling allows plan participants in this category to continue saving on a pre-tax basis for 2023, 2024, and 2025 (note, these funds are taxed as ordinary income when distributed in retirement). For calendar year 2023, the catch-up contribution limit is $7,500, bringing the total allowable pre-tax deferral to $30,000. Interestingly, as noted by Ian Badger on 9/11/23 in his report on irahlep.com, self-employed individuals with income above the $145,000 would not be subject to the mandatory requirement unless their “wages,” as defined by the IRS, are above $145,000 in the previous year: 

“The Roth mandate only applies to employees with “wages” from the employer in the preceding year that exceeds a dollar threshold. (That threshold would have been $145,000 in 2023 wages had the rule become effective in 2024.) But self-employed persons have self-employment income, not wages. If a self-employed’ s income exceeds the dollar limit in the prior year, is he required to make catch-ups on a Roth basis?  The IRS said no. Only high-paid workers with actual “wages” are subject to the Roth rule. The IRS also confirmed that “wages” means wages subject to FICA; that is, amounts reported on Box 3 (not Box 1) of W-2.” 

Berger also points out that, starting in January 2026, retirement plan recordkeepers and administrators will be able to disregard elections made by employees to have catch-up contributions made pre-tax, thereby forcing the contributions to the Roth. 

Careful planning will allow savers to make the most of their retirement plans, while considering the many pros and cons of savings in various tax buckets. At DCA, we consider the many individual circumstances of each client when helping them decide how and when to save across pre-tax, after-tax and tax-free options. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness. Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions. Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal. Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements. Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.

Schedule a Meeting