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SECURE 2.0 60-63 CAtch-ups - Optional or Mandatory?


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I would think optional since plans don't have to allow for catch-up in the first place?  But who knows. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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As a further clarification to CBZeller's note that participants must have the same effective opportunity to make catch-up contributions, IRS 414(v)(2) says:


(2) Limitation on amount of additional deferrals
(A) In general

A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of—

(i) the applicable dollar amount

This language allows for a plan to limit catch-up contributions to an amount that is lower than the catch-up limit.

The Joint Committee on Taxatation General Explanation of section 109 of SECURE 2.0 says in part:


Explanation of Provision
Under the provision, the limit on catch-up contributions is increased for individuals who would attain age 60, 61, 62, or 63 (but who are not older than age 63), by the end of the taxable year. A section 401(k) plan ... may increase the limit on catch-up contributions for such individuals to the lesser of (1) the adjusted dollar amount or (2) the participant’s compensation for the year reduced by any other elective deferrals of the participant for the year.

This reinforces the idea that the SECURE 2.0 increased limits are themselves optional.

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This is all wonderful news.  I think probably 80% of my clients (i.e., the smaller ones) will not adopt this provision.  Wonderful sentiment, but execution is so incredibly infeasible.  And if you have less than 50 employees, you might have one person every 3 or 4 years eligible for this, and how many of them can actually contribute more than $30,000???  I just don't get it.  This is wonderful for IBM and Microsoft and Amazon, but down here in the weeds it's the last thing anyone wants to deal with.

Austin Powers, CPA, QPA, ERPA

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