In a letter submitted to the Treasury Department and the IRS earlier this month, the AICPA requested additional guidance related to catch-up contributions designated as Roth contributions within Section 603 of the SECURE 2.0 Act of 2022.
This past January, Treasury and the IRS issued REG-101268-24 that included guidance reflecting the statutory changes made by Section 603 of SECURE 2.0, which was signed into law as part of the Consolidated Appropriations Act of 2023. Those changes include the requirement that catch-up contributions made by certain catch-up eligible participants must be designated as Roth contributions, otherwise referred to as “the Roth mandate.”
- Related article: IRS and Treasury Department Propose Regs on New Roth Catch-Up Rule, 401(k) Auto Enrollment
The Roth mandate affects certain employees participating in employer-sponsored retirement plans who are eligible to make catch-up contributions and whose wages meet a specific income threshold, according to the AICPA.
In the letter, dated July 1 and signed by Cheri Freeh, chair of the AICPA Tax Executive Committee, the AICPA recommends that Treasury and the IRS create a safe harbor that allows plan administrators to rely on W-2 wage information when determining if employees exceed the catch-up wage threshold for the purposes of the Roth mandate. If such a safe harbor is unable to be adopted, clear guidance is suggested related to scenarios involving predecessor employers and other third-party arrangements, including relief for noncompliance that may result and otherwise be unavoidable in reasonable administration of plans using Form W-2 information for purposes of determining which employees are subject to the Roth mandate.
The AICPA also recommends that Treasury and the IRS articulate a position on whether a disregarded entity is treated as a separate “employer sponsoring the plan” for purposes of Prop. Reg. 1.414(v)-2(b)(3) and (4).
A disregarded entity with employees is generally required to file employment tax returns using its own employer identification number and is treated as an employer, regardless of its disregarded status for income tax purposes.
“Post-SECURE 2.0, employers and plan administrators will need clear guidance to ensure compliance of the law regarding Roth-mandated catch-up contributions,” Kristin Esposito, AICPA director of tax policy and advocacy, said in a statement. “Our recommendations to the regulations proposed by Treasury and the IRS, if adopted, will make it easier for plan administrators to implement the law.”
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