Secure Act 2.0 -401k changes

Submitted by D Thomas on Wed, 2023-02-15 17:34

question indirectly related to IRAs, does anyone know how new changes to -401k for employer match being either taxable or Roth is meant to be implemented? if my plan sponsor implements the employer match as Roth, does that count toward the annual -401k deferral max or toward the considerably larger -415c max? i have tried in vain to find the specific verbiage in Federal Register. thank you.
-DPThomas



Submitted by David Mertz on Wed, 2023-02-15 18:00

  • Whether traditional or Roth, employer contributions count toward the 415(c) limit, not the 402(g) elective deferral limit.
  • The IRS will need to provide guidance for reporting on the employee’s W-2 any employer matching contributions made to the Roth account because, although these are presumably not includible in box 1 as wages, they are taxable to the employee.  I would not hold my breath waiting for this guidance although I would hope that it would be available before the end of 2023 in case any plans adopt this feature for 2023.  Perhaps the IRS will add a box-12 code for reporting taxable matching contributions.

Submitted by Alan - IRA critic on Wed, 2023-02-15 19:05

  • In my opinion, while Roth matching is optional it also pairs up in many respects to Roth catchup contributions which are mandatory in 2024 if they have any employees making 145k. I expect most larger companies will decide to adopt the Roth matching since they already will have to offer Roth catchup and make the accompanying payroll and systems changes. Therefore, probably not too many offering the Roth match in 2023, but there should be a major uptake in 2024. 

Submitted by learner on Sat, 2023-03-04 13:40

Is the income limit of $145K for Roth catchup the total income of the year or the income over $145K?  For example, may I contribute to the traditional 401k catchup until my income crosses $145K YTD in the middle of the year and switch over to Roth contribution?

Submitted by William Tuttle on Sat, 2023-03-04 14:16

  • There is a serios drafting error in Section 603 that actually eliminates all catch-up contributions starting in 2024.
  • Congress is notorious for taking years to find a legislative vehicle to attach simple technical corrections.
  • The IRS may have the authority to and has implemented pending technical corrections prior to enactment (PPA 2006). However, they have not always done so.
  • This drafting error has been acknowledged by members of Congress and the IRS.

Submitted by William Tuttle on Sat, 2023-03-04 14:42

  • It is not a $145K income limit.
  • It only applies to a taxpayer’s prior year wages of their current employer.
  • It does not apply to self-employed individuals.
  • If a technical correction is signed into law this year or the IRS issues guidance this year. 2023 wages will be used to determine if 2024 Roth 401k catch-up contributions are required.
  • Note: This provision does not apply if the plan does not support Roth catch-up contributions.

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