Ascending SECURE 2.0: Catch-Up Contributions

Written By: Sydney Aeschlimann and Robert Stebbins           

Navigating SECURE 2.0 provisions has been a journey for plan sponsors and service providers. One could akin the journey to climbing a steep mountain, often without a clear path. In 2022, when SECURE 2.0 was enacted, it felt daunting. The sheer volume of new rules was overwhelming. Nevertheless, we started our ascent. Over two years later, we have navigated much of the journey, implementing optional and mandatory provisions in our plans, but we have not reached the peak. At least two substantive provisions stand in the way of reaching the summit, both relating to catch-up contributions.

The first, commonly called the “Super Catch-Up” provision, is optional. If added to a plan, it would allow participants ages 60-63 to make supplemental catch-up contributions in addition to the traditional catch-up amount of $7,500 (2025 limit). The Super Catch-Up contribution limit is the greater of $10,000 or 50% more than the traditional catch-up amount. Using 2025 limits, the maximum Super Catch-Up is $11,250 (150% of $7,500). Therefore, the maximum amount a participant ages 60-63 could contribute to their retirement plan increases to $34,750 ($23,500 + $11,250) in 2025 with this new provision.

Catch Up Contribution Limits | Super Catch Up Contribution Limits

2021: $6,500 | N/A

2022: $6,500 | N/A

2023: $7,500 | N/A

2024: $7,500 | N/A

2025: $7,500 | $11,250

Unfortunately, the definition of “age” is not necessarily as intuitive as one might think. Participant eligibility for Super Catch-Up contributions is determined by the age the participant will turn during that calendar year. For example, if a participant turns 60 at any point in 2025, they would be eligible to make a Super Catch-Up contribution in 2025. Conversely, those who are currently 63 but will turn 64 in 2025 would not be eligible for a Super Catch-Up contribution.

As mentioned above, this provision is optional. Philosophically, as a plan sponsor, there is not much downside to adding Super Catch-Up. You are giving participants a chance to save more, which can be especially helpful in the years leading up to retirement. One downside could be the potential administrative burden of implementing and keeping track of the provision. The best practice is to check with your payroll provider to ensure they are ready to administer Super Catch-Up. Your payroll system must be able to apply different contribution limits for participants ages 60-63. For those working with smaller payroll providers or doing payroll in-house, this could create potential administrative challenges.

Onto steeper, more treacherous terrain, the second catch-up contribution provision is mandatory Roth catch-up contributions. Starting in 2026, all catch-up contributions must be Roth for participants making $145,000 or more in FICA wages. This goes for traditional catch-up contributions and Super Catch-Up contributions. This SECURE 2.0 provision was originally intended to be effective by 1/1/2024 but was postponed due to the complexities and the nuances surrounding its practical administration.

One question plan sponsors have asked is, what if they accidentally make a participant’s catch-up contribution pre-tax when it should have been Roth? Plan sponsors can fix this by modifying the participant’s W2, but only if the W2 has not yet been issued. If the W2 has already been issued when the plan sponsor notices the mistake, the plan sponsor can convert the pre-tax dollars to Roth through an in-plan Roth Conversion. If your plan does not currently offer in-plan Roth Conversions, adding it as a standard provision in the plan could be helpful for these potential corrections in the future.

Additionally, as the proposed regulation currently stands, if a participant does not earn FICA wages, the participant will not be subject to the mandatory Roth provision. This means that if you have participants who do not earn FICA wages, for example, those who participate in a social security replacement plan, they will not be subject to mandatory Roth on their catch-up contributions. We are awaiting final guidance on this issue, but currently, this is the interpretation.

With rumors of SECURE 3.0 percolating through the industry, our mountain top may be farther away than anticipated.