On December 29, 2022, Biden signed H.R.2617, the Consolidated Appropriations Act of 2023, into law. Hidden within this appropriations bill are several retirement provisions under the section named “Division T – The SECURE 2.0 Act of 2022” (PDF Page 817).

In this series, I am reviewing the major changes created by this act. This article is about “SEC. 603. ELECTIVE DEFERRALS GENERALLY LIMITED TO REGULAR CONTRIBUTION LIMIT.” (starts on PDF Page 933).

Prior to this amendment, anyone over the age of 50 was permitted a catch-up amount which increased both their employee elective deferral limit and their total retirement contribution limit. In tax year 2023, this catch-up amount was set to $7,500, bringing the total employee elective deferral up to $30,000 for those over age 50.

This section makes it so that eligible retirement plan participants whose wages in the year prior exceeded $145,000 are only allowed to make catch-up contributions if those contributions are designated at Roth deferrals.

It also states that if an employer has an employee where this rule applies and the employer does not offer a Roth option, then no one on that employer’s retirement plan is eligible to make catch-up contributions regardless of their prior year wages.

The amendments made by this section shall apply to taxable years beginning after December 31, 2023. In other words, these first apply in tax year 2024.

Note that these provisions appear to be focused on your wages at one employer. You may have two employers who each offer a 401(k) plan. While your taxable compensation may exceed $145,000 when you combine employers, presumably you could still make pre-tax catch-up contributions with at least one employer if your wages at that employer specifically did not exceed $145,000.

Similarly, if you do not have wages because, for example, you are self-employed and only paid profit as an owner, then your $0 of wages would appear to be below the $145,000 wages limit and you would be able to make pre-tax catch-up contributions.

Hopefully over all this amendment encourages employer plans to offer Roth options, which will be good for taxpayers, even if this additional wealthy discrimination is unwelcome.

For those interested, here is what the revised U.S. Code appears to be for Section 414(v):

(v) Catch-up contributions for individuals age 50 or over
(1) In general

An applicable employer plan shall not be treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.

…

(7) CERTAIN DEFERRALS MUST BE ROTH CONTRIBUTIONS.—
(A) IN GENERAL.—Except as provided in subparagraph (C), in the case of an eligible participant whose wages (as defined in section 3121(a)) for the preceding calendar
year from the employer sponsoring the plan exceed $145,000, paragraph (1) shall apply only if any additional elective deferrals are designated Roth contributions (as defined in section 402A(c)(1)) made pursuant to an employee election.
(B) ROTH OPTION.—In the case of an applicable employer plan with respect to which subparagraph (A) applies to any participant for a plan year, paragraph (1) shall not apply to the plan unless the plan provides that any eligible participant may make the participant’s additional elective deferrals as designated Roth contributions.
(C) EXCEPTION.—Subparagraph (A) shall not apply in the case of an applicable employer plan described in paragraph (6)(A)(iv).

(D) ELECTION TO CHANGE DEFERRALS.—The Secretary may provide by regulations that an eligible participant may elect to change the participant’s election to make additional elective deferrals if the participant’s compensation is determined to exceed the limitation under subparagraph (A) after the election is made.
(E) COST OF LIVING ADJUSTMENT.—In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the $145,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2023, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

And the revised code for 457(e)(18)(A)(ii):

(18) Coordination with catch-up contributions for individuals age 50 or older

In the case of an individual who is an eligible participant (as defined by section 414(v)) and who is a participant in an eligible deferred compensation plan of an employer described in paragraph (1)(A), subsections (b)(3) and (c) shall be applied by substituting for the amount otherwise determined under the applicable subsection the greater of—
(A) the sum of—
(i) the plan ceiling established for purposes of subsection (b)(2) (without regard to subsection (b)(3)), plus
(ii) the lesser of any designated Roth contributions made by the participant to the plan or the applicable dollar amount for the taxable year determined under section 414(v)(2)(B)(i), or

(B) the amount determined under the applicable subsection (without regard to this paragraph).

Photo by Element5 Digital on Unsplash. Photo has been cropped.