Understanding the Latest Treasury and IRS Proposed Regulations Under SECURE 2.0 Act

On January 10, 2025, the Department of the Treasury and the Internal Revenue Service (IRS) issued proposed regulations to clarify key provisions of the SECURE 2.0 Act of 2022, aiming to enhance retirement savings and streamline plan administration.

IRS

Roth Catch-Up Contributions

One significant proposal addresses the requirement for higher-income participants to make catch-up contributions on a Roth (after-tax) basis. Starting in 2026, employees aged 50 or older earning more than $145,000 annually will need to designate their catch-up contributions as Roth contributions. This change ensures that taxes are paid upfront, allowing for tax-free withdrawals in retirement.

Automatic Enrollment in Retirement Plans

Another critical aspect of the proposed regulations is the mandate for automatic enrollment in newly established 401(k) and 403(b) plans, effective for plan years beginning after December 31, 2024. Under this provision, eligible employees will be automatically enrolled at a minimum contribution rate of 3% of their salary, with an annual increase of 1% until reaching at least 10%, unless they opt out. This initiative aims to encourage greater participation in retirement savings plans.

Implications for Plan Sponsors and Participants

These proposed regulations provide much-needed clarity for plan sponsors and administrators, outlining the steps necessary to comply with the new requirements. Employers will need to update their plan documents and payroll systems to accommodate Roth catch-up contributions and automatic enrollment features. Participants should be informed about how these changes affect their retirement planning, especially regarding the tax implications of Roth contributions.

Public Comments and Next Steps

The Treasury and IRS are soliciting public feedback on these proposed regulations to ensure they effectively address stakeholders' needs. Comments can be submitted through the Federal Register, and stakeholders are encouraged to participate in the process to help shape the final regulations.

In summary, the proposed regulations under the SECURE 2.0 Act represent a significant step toward enhancing retirement security for American workers. By clarifying the implementation of Roth catch-up contributions and automatic enrollment, the Treasury and IRS aim to facilitate greater retirement savings and simplify plan administration.