Section 603 of the SECURE 2.0 Act, enacted in December 2022, introduced a requirement that fundamentally changes how catch-up contributions work for higher-paid employees in employer-sponsored retirement plans. Beginning in 2024—or so the statute originally provided—employees who earned more than $145,000 in FICA wages from the employer in the prior year would be required to make any catch-up contributions on a Roth (after-tax) basis only. Pre-tax catch-up contributions would no longer be available to these employees.

The provision created immediate implementation challenges for plan sponsors, recordkeepers, and payroll providers. The timeline was aggressive—just one year from enactment to required compliance—and the statutory language contained a drafting error that, if read literally, would have eliminated catch-up contributions entirely for all employees rather than merely requiring Roth treatment for higher earners. The retirement industry raised alarms, and the IRS responded with Notice 2023-62, which provides critical transition relief.^[1]

The Statutory Requirement

Under current law, employees aged 50 and older may make catch-up contributions to 401(k), 403(b), and governmental 457(b) plans above the normal elective deferral limit. For 2023, the catch-up contribution limit is $7,500 for 401(k) and 403(b) plans. These catch-up contributions may currently be made on either a pre-tax or Roth basis, at the employee’s election, provided the plan offers both options.

Section 603 of SECURE 2.0 amends this framework by requiring that catch-up contributions for employees with prior-year FICA wages exceeding $145,000 (indexed for inflation) must be designated Roth contributions. The provision applies to 401(k), 403(b), and governmental 457(b) plans. It does not apply to SIMPLE IRAs or to employees below the $145,000 threshold, who may continue to make pre-tax or Roth catch-up contributions as they choose.^[2]

The statute also contained what the retirement industry quickly identified as a drafting error. In amending IRC § 402(g), the provision inadvertently struck the language authorizing pre-tax catch-up contributions without replacing it with a corresponding authorization for Roth catch-up contributions. Read literally, the amended statute appeared to eliminate the ability to make any catch-up contributions—an outcome that clearly was not Congress’s intent but that created significant legal uncertainty for plan sponsors.

Notice 2023-62: The IRS Response

The IRS addressed both the implementation timeline and the drafting error through Notice 2023-62. The most important element of the guidance is a two-year administrative transition period. The IRS will not treat a plan as failing to satisfy the Roth catch-up requirement for taxable years beginning before January 1, 2026. This means that plan sponsors have until the 2026 plan year to implement the necessary systems changes to comply with Section 603.

The Notice also addresses the statutory drafting error directly. The IRS stated that it intends to treat the amendment as not eliminating the ability to make catch-up contributions. Under the IRS’s interpretation, catch-up contributions remain available for all eligible employees, and the statutory language will be interpreted consistently with Congress’s evident intent to require Roth treatment only for higher-paid employees—not to eliminate catch-up contributions altogether.^[3]

Additionally, the Notice confirms that plans that do not currently offer a Roth contribution option are not required to add one solely to comply with Section 603 during the transition period. However, once the transition period ends, a plan that permits catch-up contributions by participants who exceed the $145,000 threshold will need to offer designated Roth contributions to comply with the law.

What Plan Sponsors Should Do Now

The transition relief is welcome, but it should not be treated as an invitation to defer action entirely. Plan sponsors should use the extended timeline to take several concrete steps.

First, sponsors should evaluate whether their plan currently offers a Roth contribution option. If it does not, adding a Roth option will be necessary before the 2026 plan year begins. Adding Roth to a plan requires an amendment, updated participant communications, and coordination with the plan’s recordkeeper and payroll provider. These changes take time to implement properly, and waiting until the last moment creates unnecessary risk.

Second, sponsors should work with their payroll providers and recordkeepers to develop a process for identifying participants who exceed the $145,000 FICA wage threshold. The determination is made based on the prior year’s FICA wages from the specific employer sponsoring the plan, not the employee’s total income from all sources. For large employers with complex payroll systems, this tracking requirement may involve significant systems work.

Third, sponsors should review their plan documents and summary plan descriptions. Many plans will require amendments to implement the Roth catch-up requirement, and participant communications should explain the change clearly. Employees who have been making pre-tax catch-up contributions for years will need to understand that their catch-up contributions will be made on an after-tax basis going forward, which will affect their take-home pay in the year of contribution but provide tax-free treatment on distribution.

Fourth, sponsors should consider the interaction between the Roth catch-up requirement and their overall plan design. For some employers, the change may prompt a broader reevaluation of their retirement plan’s contribution structure, including whether to implement other SECURE 2.0 provisions such as the enhanced catch-up limit for employees aged 60-63 (effective in 2025) or employer matching contributions designated as Roth contributions (effective immediately).^[4]

Implications for Employees

For employees who earn more than $145,000 in FICA wages, the practical effect of the Roth catch-up requirement is a shift in the timing of their tax liability. Pre-tax catch-up contributions reduce current taxable income, and the contributions plus earnings are taxed upon distribution in retirement. Roth catch-up contributions provide no current tax deduction, but qualified distributions—including all accumulated earnings—are tax-free.

Whether this shift is advantageous or disadvantageous depends on the employee’s individual circumstances, including their current marginal tax rate, expected tax rate in retirement, time horizon until distribution, and overall estate planning objectives. For employees who expect to be in a lower tax bracket in retirement, the loss of the current deduction may increase their overall lifetime tax liability. For employees who expect to be in the same or higher bracket—or who value the certainty of tax-free growth and distribution—the Roth requirement may actually be favorable.

The key takeaway for employees is that the change is mandatory for those above the wage threshold. It is not an election. Once the provision takes effect, higher-paid employees who wish to make catch-up contributions must make them on a Roth basis or not at all. The transition period provides time for employees to incorporate this change into their broader financial and retirement planning.