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Employer Mandatory Roth Catch-up Contributions | Roth-ification SECURE 2.0 | Losing a Tax Break

Are you a highly paid employee who normally makes catch-up contributions to your employer’s retirement plan? If so, you may be affected by a provision in the SECURE Act 2.0 that requires highly paid employees to make their catch-up contributions to a Roth account.
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00:00 - Secure Act 2.0
00:37 - No catch-up contributions for anyone
01:18 - New rule for employer catch-up contributions
02:00 - What if an employer does not offer a Roth option
02:26 - What happens if the plan is discriminatory
03:21 - What happens if you change employers
03:43 - How are business owners affected
04:45 - The future of employer plan catch-up contributions


TRANSCRIPT:
When Congress signed SECURE Act 2.0 on December 29, 2022,
they accidentally deleted a section of the Tax Code that allows catch-up contributions for retirement accounts for anyone age 50 or older.
So, what they did here was totally shut-down catch-up contributions all together so that absolutely no one can make catch-up contributions anymore. As of July 2023, Congress has not fixed this mistake yet but they should be able to fix it by the time mandatory catch-up contributions kick in at the beginning of 2024.

What Congress was actually trying to do is force highly paid employees to make their catch-up contributions with after tax dollars only. If you work for the same employer that you worked for last year and that employer paid you more than $145,000 in the preceding year, you will have to make your catch-up contributions to a Roth which means that you will have to pay taxes on catch-up contributions now versus when you actually retire. The $145,000 is indexed for inflation, so the limit will change every year. Basically, the government has made this change in order to raise more tax revenue.

Employer plans that discriminate in favor of highly compensated employees must either issue refunds to the highly compensated employees; make additional contributions to non-highly compensated employees; or do a combination of both of these fixes.

The IRS hasn't put all of the SECURE Act 2.0 changes in place yet, so they may come up with additional requirements or make some slight changes.

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