Mandatory Roth Catch-Up
Still trying to wrap my head around Secure 2.0 and the effect of Roth catch up contributions for employer plans. How is the compensation determined? Is it based on prior year? If current year, what happens if a bonus occurs in December, do those catch-up contributions automatically become Roth? What about the growth in that sub account – how do the plan providers keep those separate now? Are catch up contributions going to be held in a separate sub account like Roth contributions are currently? What a mess.
Permalink Submitted by Alan - IRA critic on Wed, 2023-05-17 00:29
The matching contribution must be made to the Roth sub account if the prior year wages paid by the current employer exceeded 145k. Wages paid in the current year do not affect the current year, but may affect the match for the following year. Therefore, this provision may have a limited affect on employees who change jobs. It also will not affect the self employed. The IRS will have to provide guidance on how the additional wage income is to be reported.
Permalink Submitted by brcwm on Wed, 2023-05-17 18:07
Thank you, that makes more sense. To clarify – the $145k threshold is per employee, not joint income?
Permalink Submitted by Alan - IRA critic on Wed, 2023-05-17 20:49
Yes, per employee.