What Does IRS Notice 2023-80 Mean for Retirement Plans?

The Internal Revenue Service (IRS) released Notice 2023-62 to provide guidance on changes to retirement plan rules from the SECURE 2.0 Act of 2022. The notice addresses a new requirement for how certain employees can make “catch-up” contributions, which are extra amounts participants aged 50 and over are permitted to save in their retirement plans. The SECURE 2.0 Act introduced a mandate that would change these contributions from pre-tax to after-tax (Roth) for a specific group of savers, creating operational hurdles for many retirement plan systems.

The release of Notice 2023-62 offers a formal pause on a fast-approaching deadline. It also resolved a point of confusion caused by a potential drafting error in the original law that cast doubt on the future of catch-up contributions altogether. The guidance provides a clear path forward for the next couple of years, allowing plan sponsors and their service providers time to prepare for the eventual implementation of these new rules.

The Original Roth Catch-Up Contribution Mandate

The issue addressed by the IRS notice originates from Section 603 of the SECURE 2.0 Act. This provision established a new rule for participants in certain retirement plans who are age 50 or over and wish to make catch-up contributions. Historically, these additional contributions could be made on a pre-tax basis, lowering an employee’s current taxable income.

Under the rule, a category of “high-wage employee” was created. This classification applies to any employee whose wages from the employer sponsoring the retirement plan exceeded $145,000 in the preceding calendar year. The $145,000 figure is indexed for inflation, meaning it is expected to rise in future years.

The mandate stipulated that if a retirement plan allows catch-up contributions, any such contributions made by these high-wage employees must be designated as Roth contributions. Unlike traditional pre-tax contributions, Roth contributions are made with after-tax dollars. This means the employee does not receive an immediate tax deduction, but qualified distributions from the Roth account in retirement are tax-free.

This requirement was set to apply to common types of employer-sponsored retirement plans, including 401(k), 403(b), and governmental 457(b) plans. The original effective date for this change was for taxable years beginning after December 31, 2023. This gave plan sponsors a very short window to implement what would be a significant administrative change.

Administrative Transition Period and Implementation Delay

In response to concerns from the retirement plan community, IRS Notice 2023-62 announced a delay in the implementation of the Roth catch-up mandate. The notice formally establishes a two-year administrative transition period, postponing the new requirement. This relief provides employers, plan recordkeepers, and payroll providers time to develop and implement the necessary system changes.

The practical effect of this transition period is that the mandatory Roth catch-up rule will not be effective until taxable years beginning after December 31, 2025. This means that for 2024 and 2025, the rules remain as they were before the SECURE 2.0 Act. High-wage employees eligible to make catch-up contributions can continue to do so on a pre-tax basis.

This delay provides breathing room for plan sponsors. A plan that does not currently offer a designated Roth contribution option is not required to add one to comply with this mandate during the transition period. The IRS also clarified that formal plan amendments are not required before the end of this period. Plans will be treated as compliant with the law through the end of 2025.

Clarification on Overall Catch-Up Contribution Eligibility

Beyond delaying the Roth mandate, Notice 2023-62 addressed another issue from the text of the SECURE 2.0 Act. A legislative drafting error created uncertainty about the existence of catch-up contributions. The technical language of the law appeared to inadvertently eliminate the provision that authorizes all catch-up contributions, both pre-tax and Roth, starting in 2024.

This error suggested that no one, regardless of income, would be able to make catch-up contributions after 2023, threatening a popular retirement savings tool.

The IRS used Notice 2023-62 to resolve this ambiguity. The notice explicitly states that the Treasury Department and the IRS have concluded that this interpretation is incorrect and that the drafting error does not eliminate the statutory basis for catch-up contributions. This confirmation provided assurance that the program would continue uninterrupted.

As a result of this clarification, all plan participants who are age 50 and over can continue to make catch-up contributions after 2023, subject to plan rules and the annual limits. For 2024 and 2025, these contributions can be made on a pre-tax or Roth basis (if the plan allows) without regard to the high-wage employee mandate. The notice affirmed that the legislative intent was to modify the treatment of certain contributions, not to eliminate them.

Guidance for Plan Sponsors During the Transition

With the Roth catch-up mandate postponed until 2026, the focus for plan sponsors shifts to strategic preparation. The two-year transition period provides a window to ensure operational readiness. Sponsors should begin evaluating their current payroll systems and administrative procedures to determine what changes are needed to accommodate mandatory Roth designations for specific employees based on prior-year wages.

Plan sponsors should also contact their recordkeepers and third-party administrators (TPAs) to understand their timeline for implementing the required system updates. These discussions should cover how the provider will identify affected high-wage employees and how they will handle the mandatory Roth designation.

For retirement plans that do not currently offer a Roth contribution feature, the transition period is the time to begin the process of adding one. Introducing a Roth option requires a formal amendment to the plan document, so sponsors should work with legal counsel to draft the amendment well before the 2026 deadline.

Finally, a clear employee communications strategy is important. The change to mandatory Roth catch-up contributions will directly impact high-wage earners. Sponsors should plan to communicate these changes well in advance of the 2026 effective date, explaining who is affected and how the new rule works.