IRS, Treasury Release Proposed Regulations on SECURE 2.0 Provisions

The Department of the Treasury and the Internal Revenue Service Friday issued proposed regulations for several provisions of the SECURE 2.0 Act of 2022.

The first proposed regulations address the rules for new Roth catch-up contributions, beginning in 2026, as well as other catch-up contributions across different defined contribution plan types.

Later Friday, Treasury and the IRS issued another set of proposed regulations for the SECURE 2.0 provision that requires newly established 401(k) and 403(b) plans to automatically enroll eligible employees beginning with the 2025 plan year.

The auto-enrollment proposal requires plan sponsors, unless an employee opts out, to “automatically enroll the employee at an initial contribution rate of at least 3% of the employee’s pay and automatically increase the initial contribution rate by one percentage point each year until it reaches at least 10% of pay. This requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, the date the SECURE 2.0 Act became law, with exceptions for new and small businesses, church plans, and governmental plans.”

A public hearing on the proposed auto-enrollment regulation has been scheduled for April 8, 2025.

Roth Catch-Up Rule

The proposed Roth catch-up contribution regulations reflect comments received in response to Notice 2023-62, issued in August 2023, which extended the deadline for when catch-up contributions made by higher-income participants in 401(k) and similar retirement plans need to be designated as after-tax Roth contributions.

Under Section 603 of SECURE 2.0, the new Roth catch-up rule applies to an employee who is at least 50 years old; participates in a 401(k), 403(b) or governmental 457(b) plan; and whose prior-year Social Security wages from an employer sponsoring the plan exceeded $145,000.

Under the proposed regulation published on Friday, a plan that provides a Roth catch-up election would be required, as is the case for any other Roth contribution, to:

1. Treat catch-up contributions subjected to the deemed Roth catch-up election as not excludible from the participant’s gross income; and
2. Maintain the catch-up contributions in a designated Roth account.

The proposed regulation also dictates that employees that would be eligible to make Roth catch-up contributions must have the ability to choose not to make those Roth contributions.

“Under the proposed regulation, a plan would need to permit a participant subject to a deemed Roth catch-up election to elect to cease making additional elective deferrals,” the proposal states.

Age 60 to 63 Catch-Ups

In addition, the proposed regulations provide guidance related to the increased catch-up contribution limit for those aged 60 to 63 under Section 109 of SECURE 2.0.

Beginning this month, employees ages 60 through 63 can contribute the greater of $11,250 or 150% of the current age 50 catch-up limit. At age 64, the limit reverts back to the standard catch-up amount. The proposed regulations also state that for years after December 31, 2025, these increased catch-up contribution amounts are subject to cost-of-living adjustments.

Affected participants also include employees in newly established SIMPLE plans.

In accordance with the universal availability requirement for 403(b) plans, Treasury and the IRS also explained that 403(b) plans must allow all catch-up-eligible participants an effective opportunity to make the same dollar amount of catch-up contributions.

However, Treasury and the IRS “do not believe that a plan should fail to satisfy the universal availability requirement merely because the plan utilizes the increased limit for catch-up eligible participants attaining age 60 through 63.” As a result, a new provision would set forth an exception to the general rule that does not subject all participants to the increased catch-up limit.

The agencies also received comments requesting clarification that designated Roth contributions made at any point within a year may be counted toward satisfaction of the Roth catch-up requirement, even if the designated Roth contributions are made earlier than the contributions that are determined to be catch-up contributions—that is, before the participant is considered to have reached an applicable limit of elective deferrals for the year.

Treasury and the IRS stated that only elective deferrals that are made after reaching the calendar-year limit would be taken into account in satisfying the Roth catch-up requirement.

A public hearing on the proposed regulation has been scheduled for April 7, 2025. Commenters are encouraged to submit public comments electronically via the Federal eRulemaking Portal. Comments are due by 60 days from the date the proposed regulations are published in the Federal Register.