Rule2025-17865
Catch-Up Contributions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 16, 2025
Effective
November 17, 2025
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth final regulations that provide guidance for retirement plans that permit participants who have attained age 50 to make additional elective deferrals that are catch-up contributions. The regulations reflect statutory changes made by the SECURE 2.0 Act of 2022, including the requirement that catch-up contributions made by certain catch-up eligible participants must be designated Roth contributions. The regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans.
Full Text
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<title>Federal Register, Volume 90 Issue 177 (Tuesday, September 16, 2025)</title>
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[Federal Register Volume 90, Number 177 (Tuesday, September 16, 2025)]
[Rules and Regulations]
[Pages 44527-44553]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-17865]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10033]
RIN 1545-BR11
Catch-Up Contributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document sets forth final regulations that provide
guidance for retirement plans that permit participants who have
attained age 50 to make additional elective deferrals that are catch-up
contributions. The regulations reflect statutory changes made by the
SECURE 2.0 Act of 2022, including the requirement that catch-up
contributions made by certain catch-up eligible participants must be
designated Roth contributions. The regulations affect participants in,
beneficiaries of, employers maintaining, and administrators of certain
retirement plans.
DATES:
Effective date: These regulations are effective on November 17,
2025.
Applicability date: These regulations generally apply with respect
to contributions in taxable years beginning after December 31, 2026.
However, see Sec. Sec. 1.401(k)-1(f)(5)(iii), 1.414(v)-1(i)(2), and
1.414(v)-2(e)(2) and the Applicability Dates section later in this
preamble for additional details regarding applicability dates.
FOR FURTHER INFORMATION CONTACT: Jessica S. Weinberger at (202) 317-
6349 (not a toll-free number) or Christina M. Cerasale at (202) 317-
4102 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document sets forth amendments to the Income Tax Regulations
(26 CFR part 1) under sections 401(k), 403(b), and 414(v) of the
Internal Revenue Code (Code) relating to catch-up contributions. These
final regulations are issued by the Secretary of the Treasury or the
Secretary's delegate (Secretary) under the express delegations of
authority in sections 401(m)(9), 414(v)(7)(D), and 7805(a) of the Code.
Section 401(m)(9) provides, in part, that ``[t]he Secretary shall
prescribe such regulations as may be necessary to carry out the
purposes of [section 401(m) and (k)].'' Section 414(v)(7)(D) provides a
specific delegation of authority with respect to the requirements of
section 414(v)(7)(A), stating, ``[t]he Secretary may provide by
regulations that an eligible participant may elect to change the
participant's election to make additional elective deferrals if the
participant's compensation is determined to exceed the limitation under
[section 414(v)(7)(A)] after the election is made.'' Section 7805(a)
provides that ``the Secretary shall prescribe all needful rules and
regulations for the enforcement of [the Code], including all rules and
regulations as may be necessary by reason of any alteration of law in
relation to internal revenue.''
Background
This document sets forth amendments to the Income Tax Regulations
under section 414(v) of the Code. Section 414(v) permits a retirement
plan to allow catch-up eligible participants to make additional
elective deferrals that are catch-up contributions and sets forth
requirements relating to those contributions.\1\ These final
regulations amend the regulations under section 414(v) to reflect
changes to the catch-up contribution requirements for certain catch-up
eligible participants pursuant to sections 109, 117, and 603 of
Division T of the Consolidated Appropriations Act, 2023, Public Law
117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022
(SECURE 2.0 Act).
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\1\ Existing Sec. 1.414(v)-1(g)(3) provides that an employee is
a ``catch-up eligible participant'' for a taxable year if the
employee is eligible to make elective deferrals under an applicable
employer plan (without regard to section 414(v) or Sec. 1.414(v)-1)
and the employee's fiftieth or higher birthday would occur before
the end of the employee's taxable year.
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This document also sets forth conforming amendments to the
regulations under sections 401(k) and 403(b) of the Code that reflect
section 603 of the SECURE 2.0 Act.
I. General Statutory and Regulatory Framework
Section 414(v)(1) of the Code provides that an applicable employer
plan will not be treated as failing to meet any requirement of the Code
solely because it permits an eligible participant to make additional
elective deferrals (as
[[Page 44528]]
defined in section 414(v)(6)(B)) in any plan year. ``Applicable
employer plan'' is defined in section 414(v)(6)(A) to mean a qualified
plan under section 401(a) (qualified plan), a plan under which amounts
are contributed by an individual's employer for an annuity contract
described in section 403(b) (section 403(b) plan), an eligible deferred
compensation plan under section 457 of an eligible employer described
in section 457(e)(1)(A) (eligible governmental 457(b) plan),\2\ an
arrangement meeting the requirements of section 408(k) (SEP
arrangement), and an arrangement meeting the requirements of section
408(p) (SIMPLE IRA plan). Under section 414(v)(5), an eligible
participant is a participant who is generally eligible to make elective
deferrals under an applicable employer plan, who would attain age 50 by
the end of the taxable year, and with respect to whom no further
elective deferrals may (without regard to section 414(v)) be made to
the plan for the plan year (or other applicable year) by reason of a
limitation or restriction listed in section 414(v)(3) or a comparable
limitation or restriction included in the terms of the plan.
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\2\ Section 414(v)(6)(C) provides that section 414(v) does not
apply to a participant in an eligible governmental 457(b) plan for
any year for which a higher limitation applies to the participant
under section 457(b)(3).
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Under section 414(v)(2)(A), the amount of additional elective
deferrals that a plan may permit a participant to make pursuant to
section 414(v)(1) for a taxable year is limited to the lesser of: (1)
the applicable dollar amount under section 414(v)(2)(B) (referred to as
the applicable dollar catch-up limit), and (2) the excess (if any) of
the participant's compensation (as defined in section 415(c)(3)) for
the year over any other elective deferrals of the participant for such
year that are made without regard to section 414(v). Section
414(v)(2)(B)(i) provides the applicable dollar catch-up limit for an
applicable employer plan other than a plan described in section
401(k)(11) (SIMPLE 401(k) plan) or a SIMPLE IRA plan. Section
414(v)(2)(B)(ii) provides the applicable dollar catch-up limit for a
SIMPLE 401(k) plan or a SIMPLE IRA plan (collectively referred to as
SIMPLE plans). Section 414(v)(2)(C) provides that the applicable dollar
catch-up limits under section 414(v)(2)(B)(i) and (ii) are subject to
annual adjustment based on changes in the cost of living. Section
414(v)(2)(D) provides that, for purposes of section 414(v)(2), all
applicable employer plans, other than eligible governmental 457(b)
plans, that are maintained by the same employer (as determined under
section 414(b), (c), (m), or (o)) are treated as a single plan, and all
eligible governmental 457(b) plans that are maintained by the same
employer are treated as a single plan.
Under section 414(v)(3)(A)(i), a catch-up contribution is not, with
respect to the year in which the contribution is made, subject to
certain otherwise applicable limitations, including those contained in
section 401(a)(30) (limiting a participant's elective deferrals during
a calendar year to the amount permitted under section 402(g)), section
403(b) (including the requirement under section 403(b)(1)(E) that a
contract purchased under a salary reduction agreement must meet the
requirements of section 401(a)(30)), and section 457(b)(2) applied
without regard to any increase under section 457(b)(3) (limiting a
participant's elective deferrals for a taxable year to the applicable
dollar amount in section 457(e)(15), or if less, 100 percent of the
participant's includible compensation). Under section 414(v)(3)(B), in
the case of any catch-up contribution to a plan, except as provided in
section 414(v)(4), the plan shall not be treated as failing to meet the
requirements of sections 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12),
408(k), 410(b), or 416 by reason of the making of (or the right to
make) the catch-up contribution.
Section 414(v)(4) provides that an applicable employer plan is
treated as failing to meet the nondiscrimination requirements under
section 401(a)(4) with respect to benefits, rights, and features unless
the plan allows all catch-up eligible participants to make the same
election with respect to catch-up contributions. For purposes of
section 414(v)(4), all plans maintained by employers that are treated
as a single employer under section 414(b), (c), (m), or (o) are treated
as one plan (with the exception of a plan described in section
410(b)(6)(C)(i) for the duration of the transition period described in
section 410(b)(6)(C)(ii) with respect to that plan).
Section 414(v) was added to the Code by section 631 of the Economic
Growth and Tax Relief Reconciliation Act of 2001, Public Law 107-16,
115 Stat. 38. The Department of the Treasury (Treasury Department) and
the IRS issued comprehensive regulations under section 414(v) in 2003
(TD 9072, 68 FR 40510). Subsequently, provisions relating to catch-up
contributions under section 414(v) were incorporated into regulations
under sections 401(k), 403(b), and 457(b).
II. SECURE 2.0 Act Changes to Section 414(v)
A. Section 109 of the SECURE 2.0 Act
For taxable years beginning after December 31, 2024, section 109 of
the SECURE 2.0 Act amends section 414(v)(2) of the Code to increase the
applicable dollar catch-up limit under section 414(v)(2)(B)(i) and (ii)
in the case of a catch-up eligible participant who attains age 60, 61,
62, or 63 during the taxable year. For such a participant in an
applicable employer plan other than a SIMPLE plan, the increased
applicable dollar catch-up limit is 150 percent of the otherwise
applicable dollar catch-up limit under section 414(v)(2)(B)(i) in
effect for 2024.\3\ For such a participant in a SIMPLE plan, the
increased applicable dollar catch-up limit is 150 percent of the
otherwise applicable dollar catch-up limit under section
414(v)(2)(B)(ii) in effect for 2025.\4\ In either case, for a year
beginning after December 31, 2025, the increased applicable dollar
catch-up limit is subject to adjustment to reflect changes in the cost
of living, in accordance with the last sentence of section
414(v)(2)(C).
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\3\ Under section 414(v)(2)(E)(i), the adjusted annual limit on
catch-up contributions that applies to an employee participating in
an applicable employer plan other than a SIMPLE plan in a year in
which the employee attains age 60, 61, 62, or 63 is described as the
greater of $10,000 or an amount equal to 150 percent of the
otherwise applicable dollar catch-up limit under section
414(v)(2)(B)(i) in effect for 2024. However, the amount equal to 150
percent of the otherwise applicable dollar catch-up limit for 2025
($11,250) is greater than $10,000, and this amount will continue to
be greater than $10,000 in future years.
\4\ Under section 414(v)(2)(E)(ii), the adjusted annual limit on
catch-up contributions that applies to an employee participating in
an applicable employer plan that is a SIMPLE plan in a year in which
the employee attains age 60, 61, 62, or 63 is described as the
greater of $5,000 or an amount equal to 150 percent of the otherwise
applicable dollar catch-up limit under section 414(v)(2)(B)(ii) in
effect for 2025. However, the amount equal to 150 percent of the
otherwise applicable dollar catch-up limit for 2025 ($5,250) is
greater than $5,000, and this amount will continue to be greater
than $5,000 in future years.
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B. Section 117 of the SECURE 2.0 Act
A SIMPLE plan is an alternative plan design under which employees
of an eligible employer as defined in section 408(p)(2)(C)(i) (that is,
generally, an employer that had no more than 100 employees who received
at least $5,000 of compensation from the employer for the preceding
calendar year) are permitted to elect to have salary reduction
contributions (or elective contributions, in the case of a SIMPLE
401(k) plan) made on their behalf.\5\
[[Page 44529]]
Among other things, section 117 of the SECURE 2.0 Act amends section
414(v)(2) of the Code to increase the applicable dollar catch-up limit
under section 414(v)(2)(B)(ii) for SIMPLE plans sponsored by certain
eligible employers who are described in section 408(p)(2)(E)(iv).\6\
The increased applicable dollar catch-up limit is available
automatically to a SIMPLE plan sponsored by an eligible employer
described in section 408(p)(2)(E)(iv) that had no more than 25
employees who received at least $5,000 of compensation from the
employer for the preceding calendar year. Other eligible employers
described in section 408(p)(2)(E)(iv) may make an election for the
increased applicable dollar catch-up limit to apply and, if the
election is made, the employer must make additional matching or
nonelective contributions.
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\5\ The annual limit on salary reduction contributions or
elective contributions is lower for SIMPLE plans than for other
types of plans. In addition, SIMPLE plans are not subject to
nondiscrimination testing, and the employer must make certain
contributions.
\6\ An eligible employer is described in section
408(p)(2)(E)(iv) if, during the three-taxable-year period preceding
the first year that the employer maintained the SIMPLE plan, the
employer (including any member of the employer's controlled group or
any predecessor of the employer or member of its controlled group)
has not established or maintained a qualified plan, a section 403(a)
annuity plan, or a section 403(b) plan under which contributions
were made or benefits were accrued for substantially the same
employees as the employees eligible to participate in the SIMPLE
plan. See Q&A E-1 in Notice 2024-2, 2024-2 IRB 316.
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The increased applicable dollar catch-up limit, which applies to
taxable years beginning after December 31, 2023, is 110 percent of the
otherwise applicable dollar catch-up limit under section
414(v)(2)(B)(ii) for calendar year 2024. For a year beginning after
December 31, 2024, the increased applicable dollar catch-up limit is
subject to adjustment to reflect changes in the cost of living, in
accordance with section 414(v)(2)(C)(ii).
C. Section 603 of the SECURE 2.0 Act
Section 603(a) of the SECURE 2.0 Act amends section 414(v) of the
Code to add section 414(v)(7). Section 414(v)(7)(A) sets forth the
requirement that catch-up contributions made by certain catch-up
eligible participants must be designated Roth contributions (the Roth
catch-up requirement). Specifically, under section 414(v)(7)(A), in the
case of a catch-up eligible participant whose wages as defined in
section 3121(a) (that is, wages for purposes of the Federal Insurance
Contributions Act (FICA), codified at subtitle C, chapter 21 of the
Code, or FICA wages) for the preceding calendar year from the employer
sponsoring the plan exceeded $145,000, section 414(v)(1) applies only
if any catch-up contributions made by the participant are designated
Roth contributions (as defined in section 402A(c)(1)).
Section 414(v)(7)(B) provides that, in the case of an applicable
employer plan with respect to which section 414(v)(7)(A) applies to any
participant for a plan year, section 414(v)(1) does not apply to the
plan unless the plan provides that any catch-up eligible participant
may make catch-up contributions as designated Roth contributions.
Section 414(v)(7)(C) provides that section 414(v)(7)(A) does not apply
to SEP arrangements or SIMPLE IRA plans. Under section 414(v)(7)(D),
the Secretary may issue regulations providing that a catch-up eligible
participant may elect to change the participant's election to make
catch-up contributions if the participant's compensation is determined
to exceed the wage limitation under section 414(v)(7)(A) after the
election is made. Under section 414(v)(7)(E), for taxable years
beginning after December 31, 2024, the wage limitation is adjusted for
changes in the cost of living (the wage limitation, as adjusted, is
referred to as the Roth catch-up wage threshold).\7\
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\7\ The adjustments are to be made in the same manner as
adjustments under section 415(d)(1)(A) (including that any increase
which is not a multiple of $5,000 is rounded to the next lower
multiple of $5,000), except that the base period is the calendar
quarter beginning July 1, 2023.
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Section 603(b) of the SECURE 2.0 Act includes conforming amendments
with respect to section 603(a). Section 603(b)(1) of the SECURE 2.0 Act
strikes section 402(g)(1)(C) of the Code. Prior to its elimination,
section 402(g)(1)(C) provided that a catch-up eligible participant's
gross income did not include elective deferrals in excess of the
applicable dollar amount under section 402(g)(1)(B) to the extent that
the amount of those elective deferrals did not exceed the applicable
dollar catch-up limit under section 414(v)(2)(B)(i) for the taxable
year (without regard to the treatment of the elective deferrals by an
applicable employer plan under section 414(v)).
Section 603(b)(2) of the SECURE 2.0 Act amends section
457(e)(18)(A)(ii) of the Code and, pursuant to this amendment, if a
catch-up eligible participant's limit under section 457(e)(18) is
greater than the limit under section 457(b)(3) (determined without
regard to section 457(e)(18)), then a portion of the catch-up
contributions made to the eligible governmental 457(b) plan by the
participant is required to be designated Roth contributions. The
portion of the catch-up contributions that is subject to this Roth
requirement is the amount by which the sum of the limits under sections
457(b)(2) and 414(v)(2)(B)(i) exceeds the maximum permitted
contribution set forth in section 457(b)(3) (determined without regard
to section 457(e)(18)).
Under section 603(c) of the SECURE 2.0 Act, the amendments made by
section 603 of the SECURE 2.0 Act apply to taxable years beginning
after December 31, 2023.
III. Notice 2023-62
In August 2023, the Treasury Department and the IRS issued Notice
2023-62, 2023-37 IRB 817. Notice 2023-62 clarifies that, despite the
elimination of section 402(g)(1)(C) of the Code under section 603(b)(1)
of the SECURE 2.0 Act, applicable employer plans may, for taxable years
beginning after December 31, 2023, continue to permit catch-up eligible
participants to make elective deferrals that exceed the applicable
dollar amount under section 402(g)(1)(B) of the Code (or deferrals that
exceed the applicable dollar amount under section 457(e)(15)) if those
contributions in excess of the applicable dollar amount satisfy the
requirements for catch-up contributions under section 414(v). In
addition, pursuant to Notice 2023-62, the first two taxable years
beginning after December 31, 2023, are regarded as an administrative
transition period with respect to the Roth catch-up requirement. During
the administrative transition period, catch-up contributions made by a
participant who is subject to the Roth catch-up requirement will be
treated as satisfying the requirements of section 414(v)(7)(A), even if
the contributions are not designated Roth contributions.
Notice 2023-62 also summarizes anticipated guidance from the
Treasury Department and the IRS with respect to the implementation of
section 603 of the SECURE 2.0 Act as follows: (1) the Roth catch-up
requirement would not apply in the case of a catch-up eligible
participant who did not have FICA wages for the preceding calendar year
from the employer sponsoring the plan; (2) in the case of a catch-up
eligible participant who is subject to the Roth catch-up requirement, a
plan administrator and an employer would be permitted to treat an
election by the participant to make catch-up contributions on a pre-tax
basis as an election by the participant to make catch-up contributions
that are designated Roth contributions; and (3) a catch-up eligible
participant's FICA wages for the preceding calendar year
[[Page 44530]]
from one participating employer in an applicable employer plan that is
maintained by more than one employer (including a multiemployer plan)
would not be aggregated with the participant's FICA wages for the
preceding calendar year from another participating employer in the plan
for purposes of determining whether the participant's FICA wages for
that year exceeded the Roth catch-up wage threshold. The notice
requested comments with respect to the anticipated guidance summarized
in the notice, additional matters under consideration relating to a
plan without a qualified Roth contribution program, and, more
generally, the provisions of section 603 of the SECURE 2.0 Act.
IV. Proposed Regulations
A notice of proposed rulemaking (REG-101268-24) containing proposed
regulations that would amend the regulations under sections 401(k),
403(b), and 414(v) to reflect changes to the catch-up contribution
requirements for certain catch-up eligible participants pursuant to
sections 109, 117, and 603 of the SECURE 2.0 Act was published in the
Federal Register on January 13, 2025 (90 FR 2645). Comments received in
response to Notice 2023-62 were considered in the preparation of the
proposed regulations. Nineteen comments were received on the proposed
regulations, and a public hearing was held on April 7, 2025.
After consideration of the comments received in response to the
notice of proposed rulemaking and testimony at the public hearing, the
proposed regulations are adopted by this Treasury decision with certain
changes described in the Summary of Comments and Explanation of
Revisions section of this preamble.
Summary of Comments and Explanation of Revisions
This Summary of Comments and Explanation of Revisions addresses the
significant comments regarding catch-up contributions under section
414(v) of the Code that the Treasury Department and the IRS received in
response to the proposed regulations and describes the revisions
included in the final regulations. Rules under the proposed regulations
that are included in the final regulations without change generally are
not discussed in this Summary of Comments and Explanation of Revisions.
I. Amendments to Regulations Under Sections 401(k) and 403(b)--Deemed
Roth Catch-Up Election
In order to facilitate compliance with the Roth catch-up
requirement under section 414(v)(7)(A), proposed Sec. 1.401(k)-
1(f)(5)(iii) generally would permit a plan to provide, for taxable
years beginning after December 31, 2023, that a participant who is
subject to the Roth catch-up requirement is deemed to have irrevocably
designated any catch-up contributions as designated Roth contributions
in accordance with the requirements of existing Sec. 1.401(k)-
1(f)(1)(i). However, in accordance with section 414(v)(7)(D), proposed
Sec. 1.401(k)-1(f)(5)(iv) would provide that the application of a
deemed Roth catch-up election to a participant would be conditioned on
the participant having an effective opportunity (determined in
accordance with existing Sec. 1.401(k)-1(e)(2)(ii), which applies a
facts and circumstances test) to make a new election that is different
than the deemed election. The proposed regulations also proposed to
amend Sec. 1.403(b)-3(c)(1) to incorporate proposed Sec. 1.401(k)-
1(f)(5)(iii) and (iv), among other provisions.
Commenters requested that the final regulations permit a plan to
continue applying a deemed Roth catch-up election to a participant in
certain circumstances in which the participant is no longer subject to
the Roth catch-up requirement. One commenter requested that, in the
case of a participant who ceases to be subject to the Roth catch-up
requirement during a taxable year due to a transfer of employment to
another participating employer, a plan be permitted to continue
applying the deemed Roth catch-up election to the participant until the
end of the taxable year. Similarly, commenters requested that the final
regulations permit a plan to continue applying the deemed Roth catch-up
election to a participant for a taxable year based on the FICA wages
reported on the participant's Form W-2 (Wage and Tax Statement) for the
preceding calendar year, even if the participant's FICA wages for the
preceding calendar year are later determined not to exceed the Roth
catch-up wage threshold.
In response to these comments, the final regulations clarify the
conditions set forth in proposed Sec. 1.401(k)-1(f)(5)(iv) by
providing that the deemed election described in Sec. 1.401(k)-
1(f)(5)(iii) must cease to apply to an employee within a reasonable
period of time following the date on which: (1) the employee ceases to
be subject to the requirement under section 414(v)(7) to make any
catch-up contributions as designated Roth contributions, or (2) an
amended Form W-2 is filed or furnished to the employee indicating that
the employee is not subject to the requirement under section 414(v)(7)
to make any catch-up contributions as designated Roth contributions.
Accordingly, catch-up contributions that were designated as Roth
contributions pursuant to the deemed election before the end of the
reasonable period of time referred to in the prior sentence do not need
to be recharacterized as pre-tax catch-up contributions.
One commenter requested clarification regarding the effective
opportunity requirement under proposed Sec. 1.401(k)-1(f)(5)(iv),
including whether a notice requirement applies and how any notice
requirement could be satisfied. The final regulations retain the
proposed rule providing that whether a participant has an effective
opportunity is determined under existing Sec. 1.401(k)-1(e)(2)(ii),
which applies a facts and circumstances test. However, the
determination of whether certain facts and circumstances would satisfy
the requirements of Sec. 1.401(k)-1(e)(2)(ii) is outside the scope of
the final regulations.
One commenter requested that the final regulations permit a plan to
apply a deemed Roth catch-up election to a participant who is subject
to the Roth catch-up requirement if the participant's elective
deferrals for the taxable year have reached the section 401(a)(30)
limit without regard to any designated Roth contributions that the
participant made earlier in the taxable year.
The final regulations retain the proposed rule that a plan may
provide that an employee who is subject to the Roth catch-up
requirement is deemed to have irrevocably designated any elective
deferrals that are catch-up contributions as designated Roth
contributions. As described in section III.B.1 of this Summary of
Comments and Explanation of Revisions (``Designated Roth contributions
that are treated as catch-up contributions for purposes of the Roth
catch-up requirement''), the final regulations also retain the proposed
rule in Sec. 1.414(v)-2(b)(1), which provides that an elective
deferral that is treated as a catch-up contribution at the time of
deferral (for example, an elective deferral that is a catch-up
contribution because it exceeds the section 401(a)(30) limit on
elective deferrals) is required to be a designated Roth contribution
only to the extent the participant has not previously made elective
deferrals that are designated Roth contributions during the taxable
year equal to the applicable dollar catch-up limit under Sec.
1.414(v)-1(c)(2). However, this commenter's request to be permitted to
deem elective deferrals as designated Roth contributions once total
elective deferrals have reached the section
[[Page 44531]]
401(a)(30) limit has been incorporated into the final rules in Sec.
1.414(v)-2(c)(3)(i)(B) regarding the practices and procedures that are
necessary in order for a plan to use the Form W-2 or in-plan Roth
rollover correction method to correct a pre-tax elective deferral that
exceeds a statutory limit, as explained further in sections III.B.1 and
III.C.3.a of this Summary of Comments and Explanation of Revisions
(``Prerequisite to correct certain section 414(v)(7) failures under the
new correction methods'').
One commenter requested that a plan be permitted to apply a deemed
Roth catch-up election in the case of a participant who is permitted
under the plan to make a separate election to treat a portion of the
participant's elective deferrals as catch-up contributions during each
payroll period without regard to whether the participant has already
made elective deferrals equal to the section 401(a)(30) limit (referred
to as a separate election plan). Assuming this deeming is permitted,
the commenter also requested that no correction be required if such an
elective deferral is deemed to be made as a designated Roth
contribution but is later determined not to be a catch-up contribution.
Under existing Sec. 1.414(v)-1(c)(3), the determination of whether
an elective deferral is a catch-up contribution is made as of the last
day of the plan year (or in the case of section 415, as of the last day
of the limitation year), except that, with respect to elective
deferrals in excess of an applicable limit that is tested on the basis
of the taxable year or calendar year (for example, the section
401(a)(30) limit on elective deferrals), the determination of whether
such elective deferrals are treated as catch-up contributions is made
at the time they are deferred. Thus, an additional elective deferral
that exceeds an employer-provided limit (for example, a plan limit on
the amount of a participant's compensation that may be deferred for
each payroll period) would not be determined to be a catch-up
contribution under the existing regulations until the last day of the
plan year (regardless of any earlier treatment as catch-up
contributions pursuant to a participant election). The final
regulations do not make changes to Sec. 1.414(v)-1(c)(3).
However, for a separate election plan (including a plan utilizing
the proration-of-limit design described in existing Sec. 1.414(v)-
1(e)(1)(ii)(A)), Sec. 1.401(k)-1(f)(5)(v) of the final regulations
permits the plan to apply a separate-election deemed Roth catch-up
election to a participant's elective deferrals that the participant
elects to treat as catch-up contributions. As with any application of a
deemed Roth catch-up election to a participant, the application in this
case would be conditioned on the participant having an effective
opportunity (determined in accordance with existing Sec. 1.401(k)-
1(e)(2)(ii)) to make a new election that is different than the deemed
election. Thus, in the case of a participant who is made subject to a
separate-election deemed Roth catch-up contribution election and does
not make a different election, the plan is not required to
recharacterize as pre-tax any of the participant's elective deferrals
treated as Roth catch-up contributions pursuant to the deemed Roth
election, even if these amounts are determined not to be catch-up
contributions under Sec. 1.414(v)-1(c)(3).
One commenter requested that the final regulations provide guidance
on whether, in order to apply a deemed Roth catch-up election to a
participant, the deemed Roth catch-up election must be set forth in a
plan amendment (and, if so, requested additional time following the
publication of the final regulations for an employer to adopt the plan
amendment). Under the final regulations, as under the proposed
regulations, a plan generally may provide that an employee who is
subject to the Roth catch-up requirement is deemed to have irrevocably
designated any elective deferrals that are catch-up contributions as
designated Roth contributions. Thus, in order for a plan to apply a
deemed Roth catch-up election to a participant, the deemed Roth catch-
up election must be set forth in the plan document.
Although the final regulations do not address the deadline for this
plan amendment, under Q&A J-1 of Notice 2024-2, the deadline under
section 501 of the SECURE 2.0 Act to amend a plan (for required,
integral, and discretionary plan amendments) with respect to the
applicable provisions of section 603 of the SECURE 2.0 Act, or any
regulations thereunder, generally is extended to December 31, 2026.
Further extensions apply in the case of: (1) a qualified plan that is
an applicable collectively bargained plan or a governmental plan within
the meaning of section 414(d); (2) a section 403(b) plan that is an
applicable collectively bargained plan of a tax-exempt organization
described in section 501(c)(3) of the Code or maintained by a public
school; or (3) an eligible governmental 457(b) plan.
While proposed Sec. 1.401(k)-1(f)(5)(iii) would permit a deemed
Roth election with respect to a participant who is subject to the Roth
catch-up requirement, the proposed regulations did not include a rule
permitting a plan to require that all participants' catch-up
contributions be designated Roth contributions. Footnote 16 of the
preamble to the proposed regulations explained that, for a participant
who is not subject to the Roth catch-up requirement, allowing a plan
design that requires all participants' catch-up contributions to be
designated Roth contributions would be inconsistent with the language
of section 402A(b)(1), which provides that a designated Roth
contribution must be elected by an employee ``in lieu of all or a
portion of elective deferrals the employee is otherwise eligible to
make.'' \8\
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\8\ Section 402A(b)(1) provides that ``[t]he term `qualified
Roth contribution program' means a program under which an employee
may elect to make, or to have made on the employee's behalf,
designated Roth contributions in lieu of all or a portion of
elective deferrals the employee is otherwise eligible to make, or of
matching contributions or nonelective contributions which may
otherwise be made on the employee's behalf, under the applicable
retirement plan.''
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Notwithstanding the explanation in footnote 16 of the preamble to
the proposed regulations, commenters requested that the final
regulations permit a plan to require that all participants' catch-up
contributions be made as designated Roth contributions, regardless of a
participant's FICA wages for the preceding calendar year. Commenters
argued that permitting this plan design would simplify implementation
of the Roth catch-up requirement, would reduce section 414(v)(7)
failures, and, in some cases, could avoid a perception of unfairness
(for example, in the case of a participant who is not subject to the
Roth catch-up requirement under section 414(v)(7)(A) because the
participant did not have FICA wages in the prior year, but had wages
from self-employment for the preceding calendar year that exceeded the
Roth catch-up wage threshold). With respect to section 402A(b)(1),
commenters argued that provision merely defines the term ``qualified
Roth contribution program,'' does not explicitly prohibit a plan from
requiring that all catch-up contributions be made as designated Roth
contributions, and permits an employee to have designated Roth
contributions ``made on the employee's behalf'' under the plan.
The Treasury Department and the IRS do not agree with the
commenters' characterization of the language in section 402A(b)(1) as
merely a definition. In addition, the language of section 402A(b)(1)
permitting an employee to have designated Roth contributions ``made on
the employee's behalf'' under a plan was added to section 402A(b)(1) by
section 604(b) of
[[Page 44532]]
the SECURE 2.0 Act. Section 604 of the SECURE 2.0 Act permits certain
nonelective contributions and matching contributions that are made
after December 29, 2022, to be designated Roth contributions. Thus,
this language reflects the distinction between designated Roth
contributions that are made in lieu of pre-tax elective deferrals and
those that are made in lieu of nonelective or matching contributions.
Further, section 414(v)(7)(A) refers to designated Roth
contributions as defined under section 402A(c)(1), and, under section
402A(c)(1), the term ``designated Roth contribution'' includes ``any
elective deferral . . . which is excludable from gross income of an
employee without regard to [section 402A], and the employee designates
(at such time and in such manner as the Secretary may prescribe) as not
being so excludable.'' Thus, under section 402A(c)(1), an employee must
be permitted to make a pre-tax elective deferral in order for the
employee to designate such a pre-tax elective deferral as a designated
Roth contribution.
Although the requirement under section 402A(b)(1) and (c)(1) that
an employee be eligible to make pre-tax elective deferrals in order to
elect to make designated Roth contributions in lieu of all or a portion
of those pre-tax elective deferrals is not consistent with the Roth
catch-up requirement under section 414(v)(7)(A) in the case of a
participant who is subject to the Roth catch-up requirement, final
regulation Sec. 1.414(v)-2(b)(6) resolves this inconsistency by
providing that the Roth catch-up requirement applies notwithstanding
section 402A(b)(1) and (c)(1). However, there is no inconsistency in
the case of a participant who is not subject to the Roth catch-up
requirement. Accordingly, the final regulations do not include a rule
permitting a plan to require that all participants' catch-up
contributions be designated Roth contributions.
II. Revisions to Sec. 1.414(v)-1
A. Increased Applicable Dollar Catch-Up Limit During the Year of
Attainment of Age 60 Through 63 Under Section 109 of the SECURE 2.0 Act
The proposed regulations generally would retain the existing rules
in Sec. 1.414(v)-1(c)(2)(i) and (ii) setting forth the applicable
dollar catch-up limit that applies to a catch-up eligible participant
in an applicable employer plan that is not a SIMPLE plan and a catch-up
eligible participant in a SIMPLE plan, respectively (to be adjusted
annually under Sec. 1.414(v)-1(c)(2)(iii) for changes in the cost of
living). In accordance with section 109 of the SECURE 2.0 Act, for a
taxable year beginning after 2024, the proposed regulations also noted
the existence of a higher applicable dollar catch-up limit for an
individual attaining age 60, 61, 62, or 63 that is 150 percent of the
applicable dollar catch-up limit that applies to the individual under
Sec. 1.414(v)-1(c)(2)(i) or (ii) (as applicable) during a taxable year
beginning in 2024, adjusted for changes in the cost of living for years
after 2025.
Some commenters asked that the Treasury Department and the IRS
clarify whether a plan term that incorporates the catch-up contribution
limit under section 414(v) of the Code by reference also incorporates
the optional higher catch-up contribution limit for participants
attaining age 60, 61, 62, or 63 permitted under section 414(v)(2)(B)(i)
and (ii) in accordance with section 109 of the SECURE 2.0 Act. The
Treasury Department and the IRS expect that a plan's terms will be made
clear as to whether or not a reference to the catch-up contribution
limit under section 414(v) in the plan document includes the optional
higher limit for participants attaining age 60, 61, 62, or 63. This
ensures that a plan is operated in accordance with its terms. See Q&A
J-1 of Notice 2024-2 for a discussion of the deadline under section 501
of the SECURE 2.0 Act to adopt a plan amendment with respect to a
provision of the SECURE 2.0 Act.
One commenter requested that the final regulations permit the
increased catch-up contribution limit to continue until at least the
taxable year in which a catch-up eligible participant attains age 65.
The final regulations do not incorporate this comment because, pursuant
to section 414(v)(2)(B)(i) and (ii), the higher catch-up contribution
limits under section 414(v)(2)(E) apply only to a catch-up eligible
participant ``who would attain age 60 but would not attain age 64
before the close of the taxable year.''
Another commenter requested confirmation that catch-up eligible
participants attaining age 60, 61, 62, or 63 who are eligible to make
special section 403(b) catch-up contributions are permitted to make
those contributions in addition to catch-up contributions under section
414(v), as increased under section 414(v)(2)(E). As explained in
section III.B.3 of this Summary of Comments and Explanation of
Revisions (``Coordination with other catch-up contributions''), the
catch-up contributions described in section 414(v) may apply in a year
in which a participant also qualifies for the special section 403(b)
catch-up contributions. Thus, the Treasury Department and the IRS agree
that catch-up eligible participants attaining age 60, 61, 62, or 63 who
are eligible to make the special section 403(b) catch-up contributions
are permitted to make those contributions in addition to catch-up
contributions under section 414(v), as increased under section
414(v)(2)(E).
B. Interaction of the Adjusted Applicable Dollar Catch-Up Limits Under
Sections 109 and 117 of the SECURE 2.0 Act
In accordance with section 117 of the SECURE 2.0 Act, for a taxable
year beginning in 2024, proposed Sec. 1.414(v)-1(c)(2)(ii)(C) would
set forth a higher applicable dollar catch-up limit for a participant
in a SIMPLE plan that is sponsored by an eligible employer described in
section 408(p)(2)(E)(iv) of the Code and for which the higher
applicable dollar catch-up limit under section 414(v)(2)(B)(iii)
applies automatically or by election. The higher applicable dollar
catch-up limit under proposed Sec. 1.414(v)-1(c)(2)(ii)(C) would be
110 percent of the applicable dollar catch-up limit that applied to the
individual under proposed Sec. 1.414(v)-1(c)(2)(ii)(A) during a
taxable year beginning in 2024. For taxable years after 2024, proposed
Sec. 1.414(v)-1(c)(2)(iii)(C) would provide that this higher
applicable dollar catch-up limit is to be adjusted for changes in the
cost of living.
With respect to an individual who attains age 60 through 63 in a
year in which the individual participates in a SIMPLE plan to which the
higher applicable dollar catch-up limit under section 117 of the SECURE
2.0 Act applies, commenters requested that the final regulations
clarify whether the SIMPLE plan may provide that the applicable dollar
catch-up limit that applies to the individual is an amount equal to the
general applicable dollar catch-up limit for SIMPLE plans under section
414(v)(2)(B) of the Code, increased pursuant to section 109 of the
SECURE 2.0 Act to an amount equal to 150% of the applicable dollar
catch-up limit that would otherwise be in effect and increased further
pursuant to section 117 of the SECURE 2.0 Act to an amount equal to
110% of the applicable dollar catch-up limit that would otherwise be in
effect. As in the proposed regulations, Sec. 1.414(v)-1(c)(2)(ii)(C)
in the final regulations provides that the 10% increase under section
117 of the SECURE 2.0 Act applies to the applicable dollar catch-up
limit in effect under Sec. 1.414(v)-1(c)(2)(ii)(A). Section 1.414(v)-
[[Page 44533]]
1(c)(2)(ii)(A) sets forth the otherwise applicable dollar catch-up
limit for SIMPLE plans, without regard to the higher limit under
section 109 of the SECURE 2.0 Act (which is set forth in Sec.
1.414(v)-1(c)(2)(ii)(B)). Thus, under the final regulations, the 10%
increase under section 117 of the SECURE 2.0 Act applies only to
participants in affected SIMPLE plans who are not permitted to make the
increased catch-up contributions under section 109 of the SECURE 2.0
Act.
Section 414(v)(2)(B)(iii) of the Code provides that the higher
limit pursuant to section 117 of the SECURE 2.0 Act is ``an amount
equal to 110 percent of the dollar amount in effect under [section
414(v)(2)(B)(ii) of the Code] for calendar year 2024.'' Since section
109 of the SECURE 2.0 Act is effective for taxable years beginning
after December 31, 2024, the 50% increase for individuals attaining age
60 through 63 did not apply for calendar year 2024, and the dollar
amount in effect under section 414(v)(2)(B)(ii) of the Code for
calendar year 2024 was the same for all catch-up eligible individuals.
Thus, the applicable dollar amount under section 414(v)(2)(B)(iii) for
calendar year 2024 did not take into account the 50% increase under
section 109 of the SECURE 2.0 Act. Similarly, the applicable dollar
amount that applies under section 414(v)(2)(B)(iii) of the Code for any
calendar year after 2024 does not reflect the 50% increase under
section 109 of the SECURE 2.0 Act.
Although a SIMPLE plan cannot provide for an applicable dollar
catch-up limit that reflects increases under both sections 109 and 117
of the SECURE 2.0 Act, a SIMPLE plan that generally provides for the
10% increase under section 117 of the SECURE 2.0 Act may provide that
the 50% increase under section 109 of the SECURE 2.0 Act applies
instead to a participant in a year in which the participant attains age
60 through 63. This is because section 414(v)(2)(B)(ii) of the Code
provides that the applicable dollar catch-up limit that applies to a
SIMPLE plan participant for a year is the general applicable dollar
catch-up limit or, where applicable, the adjusted applicable dollar
catch-up limit for individuals attaining age 60 through 63, ``except as
provided in section 414(v)(2)(B)(iii).'' The Treasury Department and
the IRS interpret that exception to apply only if applying section
414(v)(2)(B)(iii) would increase the applicable dollar catch-up limit
for a participant. Thus, beginning with the 2025 calendar year, a
SIMPLE plan that is generally subject to the 10% increase under section
117 of the SECURE 2.0 Act may instead permit participants attaining age
60 through 63 to contribute catch-up contributions up to an amount
equal to 150% of the applicable dollar catch-up limit that would
otherwise be in effect (pursuant to section 109).
C. Different Applicable Dollar Catch-Up Limits and Universal
Availability
In accordance with the universal availability requirement in
section 414(v)(4) of the Code, existing Sec. 1.414(v)-1(e)(1)(i) sets
forth a general rule that an applicable employer plan that offers
catch-up contributions and that is otherwise subject to section
401(a)(4) (including a plan that is subject to section 401(a)(4)
pursuant to section 403(b)(12)) will not satisfy the requirements of
section 401(a)(4) unless all catch-up eligible participants who
participate under any applicable employer plan maintained by the
employer are provided with an effective opportunity to make the same
dollar amount of catch-up contributions.
The proposed regulations did not propose to amend the general rule
set forth in Sec. 1.414(v)-1(e)(1)(i) of the existing regulations.
However, the preamble to the proposed regulations explained that the
Treasury Department and the IRS do not believe that a plan should fail
to satisfy the universal availability requirement merely because the
plan utilizes the increased limit for catch-up eligible participants
attaining age 60 through 63 that is permitted under section
414(v)(2)(E). Thus, proposed Sec. 1.414(v)-1(e)(1)(iii) would provide
an exception to the general rule in Sec. 1.414(v)-1(e)(1)(i) if each
catch-up eligible participant who participates under any applicable
employer plan maintained by an employer is permitted to make elective
deferrals up to the statutory maximum dollar amount of catch-up
contributions permitted with respect to the participant under section
414(v). Under this new exception, an applicable employer plan would not
fail to satisfy the requirements of section 401(a)(4) merely because
the plan allows catch-up eligible participants who are subject to the
increased applicable dollar catch-up limit for participants attaining
age 60 through 63 under section 414(v)(2)(E) to make catch-up
contributions up to that increased limit, while permitting other catch-
up eligible participants to make catch-up contributions only up to the
applicable dollar catch-up limit that applies generally under section
414(v)(2)(B)(i) or (ii), as applicable.\9\
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\9\ Similarly, under proposed Sec. 1.414(v)-1(e)(1)(iii), an
applicable employer plan that covers employees in both the United
States and Puerto Rico would not fail to satisfy the requirements of
section 401(a)(4) merely because the plan allows catch-up eligible
participants whose catch-up contributions are subject to the limit
set forth in section 1081.01(d)(7) of the Puerto Rico Internal
Revenue Code of 2011 (13 L.P.R.A. section 30391(d)(7)), as amended
(Puerto Rico Code), to make catch-up contributions only up to the
amount of that limit ($1,500 for 2025).
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One commenter requested that the final regulations clarify that an
applicable employer plan does not fail to satisfy the universal
availability requirement merely because it permits non-collectively
bargained employees who are subject to the increased applicable dollar
catch-up limit for participants attaining age 60 through 63 under
section 414(v)(2)(E) to make catch-up contributions up to that
increased limit, while retaining the regular applicable dollar catch-up
limit under section 414(v)(2)(B)(i) or (ii), as applicable, for its
collectively bargained employees. Another commenter requested that the
final regulations clarify whether flexibility is available in relation
to the increased applicable dollar catch-up limit for participants
attaining age 60 through 63 under section 414(v)(2)(E) that would
enable a plan to permit fewer catch-up eligible participants to make
catch-up contributions up to that increased limit or to limit the
increase so that it is below the statutory maximum dollar amount.
The final regulations retain the exception in proposed Sec.
1.414(v)-1(e)(1)(iii) with only minor modification. Thus, under the
final regulations, an applicable employer plan generally must satisfy
the rule in existing Sec. 1.414(v)-1(e)(1)(i) or permit each
participant to make catch-up contributions equal to the statutory
maximum that applies to the participant. However, with respect to
employees described in section 410(b)(3), the final regulations amend
Sec. 1.414(v)-1(e)(2) to provide that an applicable employer plan also
does not fail to satisfy the universal availability requirement of
Sec. 1.414(v)-1(e) merely because employees described in section
410(b)(3) are provided the opportunity to make catch-up contributions
to a lesser extent than other employees.\10\ Thus, for example, an
applicable employer plan does not fail to satisfy the universal
availability requirement merely because it permits non-collectively
bargained employees who
[[Page 44534]]
are subject to the increased applicable dollar catch-up limit for
participants attaining age 60 through 63 under section 414(v)(2)(E) to
make catch-up contributions up to that increased limit, while
permitting collectively bargained employees to make catch-up
contributions only up to the applicable dollar catch-up limit that
applies generally under section 414(v)(2)(B)(i) or (ii), as applicable.
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\10\ The proposed regulations did not propose to amend Sec.
1.414(v)-1(e)(2). Prior to amendment by these final regulations,
Sec. 1.414(v)-1(e)(2) provided that an applicable employer plan
does not fail to satisfy the universal availability requirement of
Sec. 1.414(v)-1(e) merely because employees described in section
410(b)(3) (for example, collectively bargained employees) are not
provided the opportunity to make catch-up contributions.
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One commenter requested clarification that the phrase ``make the
maximum amount of catch-up contributions permitted'' in proposed Sec.
1.414(v)-1(e)(1)(iii) would not preclude an employer from utilizing the
permitted practices described in Sec. 1.414(v)-1(e)(1)(ii) of the
existing regulations, including the cash availability rule in Sec.
1.414(v)-1(e)(1)(ii)(B).\11\ Under Sec. 1.414(v)-1(e)(1)(ii), an
applicable employer plan does not fail to satisfy the universal
availability requirement of Sec. 1.414(v)-1(e) merely because of the
practices described in Sec. 1.414(v)-1(e)(1)(ii). Accordingly, the
Treasury Department and the IRS agree that the phrase ``make the
maximum amount of catch-up contributions permitted'' in Sec. 1.414(v)-
1(e)(1)(iii) of the final regulations does not preclude an employer
from utilizing the permitted practices described in Sec. 1.414(v)-
1(e)(1)(ii).
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\11\ Under Sec. 1.414(v)-1(e)(1)(ii)(B), an applicable employer
plan does not fail to satisfy the universal availability requirement
of Sec. 1.414(v)-1(e) merely because it restricts the elective
deferrals of any employee (including a catch-up eligible
participant) to amounts available after other withholding from the
employee's pay (for example, after deduction of all applicable
income and employment taxes). For this purpose, an employer limit of
75% of compensation or higher will be treated as limiting employees
to amounts available after other withholdings.
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One commenter requested relief from the universal availability
requirement in the case of a plan that permits catch-up eligible
participants attaining age 60 through 63 under section 414(v)(2)(E) to
make catch-up contributions up to that increased limit but another plan
maintained by a related employer does not, provided that all plans
maintained under the same controlled group of employers are amended
before the applicability date of the final regulations to permit catch-
up eligible participants attaining age 60 through 63 under section
414(v)(2)(E) to make catch-up contributions up to that increased limit.
As explained in footnote 6 of the preamble to the proposed regulations,
the higher applicable dollar catch-up limit for participants attaining
age 60 through 63 may, but is not required to be, included in an
applicable employer plan. However, if an applicable employer plan
provides for this higher applicable dollar catch-up limit, then any
applicable employer plan maintained by an employer within the same
controlled group must also provide for this higher applicable dollar
catch-up limit, except to the extent that the exception for employees
described in section 410(b)(3) applies under Sec. 1.414(v)-1(e)(2) of
these regulations. The final regulations do not address the application
of the universal availability requirement before the applicability date
of the final regulations.
III. Section 1.414(v)-2
A. General Rules Relating to the Requirements of Section 414(v)(7)
1. Roth Catch-Up Requirement Under Section 414(v)(7)(A)
Proposed Sec. 1.414(v)-2(a) would set forth general rules relating
to the Roth catch-up requirement under section 414(v)(7)(A). Under
proposed Sec. 1.414(v)-2(a)(2), if a catch-up eligible participant in
an applicable employer plan had FICA wages for the preceding calendar
year from the employer sponsoring the plan (as defined in proposed
Sec. 1.414(v)-2(b)(3)) that exceeded the Roth catch-up wage threshold,
then section 414(v)(1) would apply with respect to the participant's
elective deferrals that are catch-up contributions only if they are
designated Roth contributions (as defined in section 402A(c)(1)). Under
proposed Sec. 1.414(v)-2(a)(3), the initial $145,000 Roth catch-up
wage threshold would be subject to cost-of-living adjustments, in
accordance with section 414(v)(7)(E).\12\ Under proposed Sec.
1.414(v)-2(a)(4), the Roth catch-up requirement would not apply to a
participant in a SEP arrangement or a SIMPLE IRA plan, in accordance
with section 414(v)(7)(C). As further discussed in this Section
III.A.1, there are no substantive changes to these provisions in the
final regulations.
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\12\ Under proposed Sec. 1.414(v)-2(a)(2), the Roth catch-up
wage threshold of $145,000 would be applied to a catch-up eligible
participant's 2023 FICA wages to determine whether the Roth catch-up
requirement applies to the participant's catch-up contributions made
for 2024. In accordance with Notice 2024-80, 2024-47 IRB 1120, the
Roth catch-up wage threshold to be applied to a catch-up eligible
participant's 2024 FICA wages to determine whether the Roth catch-up
requirement applies to the participant's catch-up contributions made
for 2025 would remain $145,000.
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Consistent with section 414(v)(7)(A) and the description of
anticipated guidance in Notice 2023-62, proposed Sec. 1.414(v)-2(a)(2)
would provide that a participant who did not have FICA wages exceeding
$145,000 (as adjusted) from the employer sponsoring the plan for the
preceding calendar year would not be subject to the Roth catch-up
requirement under the plan for the current year. Proposed Sec.
1.414(v)-2(a)(2) would define FICA wages by reference to the FICA taxes
imposed by sections 3101(a) and 3111(a), not sections 3101(b) and
3111(b), and would provide that the wages are taken into account for
this purpose in the same year that they are taken into account for FICA
tax purposes. Accordingly, an individual who did not have any FICA
wages from the employer sponsoring the plan for the preceding calendar
year (for example, a partner who had only self-employment income; an
individual who had wages under section 3231(e) that are subject to
taxation under the Railroad Retirement Tax Act, codified at title 45,
chapter 9 of the United States Code, rather than FICA; or a State or
local government employee whose services were excluded from the
definition of employment under section 3121(b)(7) without regard to
section 3121(u)) would not be subject to the Roth catch-up requirement
under the plan in the current year. Similarly, an individual who
received cash compensation from the employer sponsoring the plan in the
preceding calendar year but nevertheless did not have any FICA wages
from the employer for that year (for example, because the compensation
was taxed in an earlier year pursuant to section 3121(v)(2)) would not
be subject to the Roth catch-up requirement under the plan in the
current year.
One commenter requested clarification as to why applicability of
the Roth catch-up requirement would be determined under the proposed
regulations on the basis of prior year FICA wages for purposes of
sections 3101(a) and 3111(a) (that is, FICA wages that are Social
Security wages reported in Box 3 of Form W-2), as opposed to sections
3101(b) and 3111(b) (that is, FICA wages that are Medicare wages
reported in Box 5 of Form W-2). Section 1.414(v)-2(a)(2) retains the
rule defining FICA wages by reference to the FICA taxes imposed by
sections 3101(a) and 3111(a) due to the impact that referencing the
FICA taxes imposed by sections 3101(b) and 3111(b) might have on
employees of State and local governments. Section 3121(a) defines
``wages'' for FICA purposes as all remuneration for employment (subject
to certain exceptions). Under section 3121(b), which defines
``employment'' for FICA purposes, the services of certain employees are
excluded from the definition of employment (including, under section
3121(b)(7), the services of
[[Page 44535]]
employees of State and local governments unless an exception applies)
and, therefore, these employees generally do not have wages under
section 3121(a) and consequently are not subject to section 414(v)(7)
of the Code.\13\ However, as a result of section 3121(u)(2), wages
subject to the taxes imposed by sections 3101(b) and 3111(b) are
reported in Box 5 for State and local government employees who are
covered by Medicare even if no wages are reported in Box 3. The
Treasury Department and the IRS do not interpret the Box 5 wages
reported in accordance with the exception in section 3121(u)(2) to be
section 3121(a) FICA wages for purposes of section 414(v)(7) because
Box 5 wages do not relate to Social Security coverage. Therefore, the
final regulations retain the rule that applicability of the Roth catch-
up requirement to a participant is based on the prior year FICA wages
reported in Box 3 of Form W-2 for the participant. The use of this rule
achieves the intended result of excepting those State and local
government employees who do not have wages subject to the taxes imposed
by sections 3101(a) and 3111(a) relating to Social Security coverage
from the application of section 414(v)(7).
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\13\ If a state and local government employee does have wages
under section 3121(a) that are subject to the taxes imposed by
sections 3101(a) and 3111(a) pursuant to an exception to section
3121(b)(7) (for example, under section 3121(b)(7)(E), an employee
who is subject to an agreement entered into pursuant to section 218
of the Social Security Act, or, under section 3121(b)(7)(F), an
employee who is not a member of a state retirement system), that
employee is subject to section 414(v)(7) of the Code.
---------------------------------------------------------------------------
The commenter also asked whether a plan could rely on the Social
Security wages reported in Box 3 of a catch-up eligible participant's
Form W-2 for the preceding calendar year for purposes of determining
whether the participant is subject to the Roth catch-up requirement,
and whether the Social Security wage base could have any impact on the
Roth catch-up wage threshold. The Treasury Department and the IRS do
not expect that the limitation of an employee's wages under sections
3101(a) and 3111(a) to the maximum Social Security wage base would
affect the ability to determine applicability of the Roth catch-up wage
threshold on the basis of those wages. For 2024, the Social Security
wage base limit was $168,600, which is significantly higher than the
$145,000 threshold for 2024 wages on which applicability of the Roth
catch-up requirement in 2025 was based. As both dollar amounts are
adjusted annually for cost-of-living increases under current law, the
Treasury Department and the IRS do not expect that applying the Social
Security wage base limit will ever affect the determination of whether
a participant is subject to the Roth catch-up wage threshold.
Commenters also requested that, until the applicability date of the
final regulations, a plan be permitted to rely on Medicare wages
reported in Box 5 of a catch-up eligible participant's Form W-2 for the
preceding calendar year for purposes of determining whether the
participant is subject to the Roth catch-up requirement. In response to
these comments, Sec. 1.414(v)-2(e)(2)(i) clarifies that, for
contributions in taxable years prior to the applicability date of the
final regulations, a reasonable, good faith interpretation standard
applies with respect to section 414(v)(7). For a discussion of the
application of this standard, see the Applicability Dates section later
in this preamble.
2. Availability of Roth Catch-Up Contributions Under Section
414(v)(7)(B)
Section 414(v)(7)(B) provides that, in the case of an applicable
employer plan with respect to which section 414(v)(7)(A) applies to any
participant for a plan year, section 414(v)(1) shall not apply to the
plan unless the plan provides that any catch-up eligible participant
may make catch-up contributions as designated Roth contributions.
Proposed Sec. 1.414(v)-2(a)(5)(ii) would set forth a rule to
address the application of section 414(v)(7)(B) to a plan that is
subject to the qualification requirements of both section 401(a) and
section 1081.01 of the Puerto Rico Code (dual-qualified plan).\14\ As
explained in the preamble to the proposed regulations, if a dual-
qualified plan that covers both employees in the United States and
employees in Puerto Rico permits any catch-up eligible participant who
is subject to the Roth catch-up requirement to make catch-up
contributions as designated Roth contributions for a plan year, then,
in accordance with section 414(v)(7)(B), the plan generally would be
required to permit all catch-up eligible participants to make catch-up
contributions as designated Roth contributions for the plan year.
However, the Puerto Rico Code currently does not provide for designated
Roth contributions. In order to address this issue, the proposed
regulations would provide that, in the case of a catch-up eligible
participant who is subject to the Roth catch-up requirement of section
414(v)(7)(A) of the Code and is subject to section 1081.01 of the
Puerto Rico Code, the requirements of section 414(v)(7)(B) of the Code
would be treated as satisfied if, under the applicable employer plan,
that participant is permitted to make catch-up contributions as after-
tax contributions within the meaning of section 1081.01(a)(15) of the
Puerto Rico Code.
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\14\ For purposes of this Treasury decision, a dual-qualified
plan includes a plan for which an election under section 1022(i)(2)
of the Employee Retirement Income Security Act of 1974 (Public Law
93-406, 88 Stat. 829), as amended (ERISA), has been made.
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Commenters requested that the final regulations permit a dual-
qualified plan to offer a participant who is subject to both section
414(v)(7)(A) of the Code and section 1081.01 of the Puerto Rico Code
the opportunity to make catch-up contributions as pre-tax contributions
(rather than after-tax catch-up contributions), and that the plan need
not offer after-tax catch-up contributions in order to satisfy section
414(v)(7)(B) of the Code. These commenters argued that the Roth catch-
up requirement of section 414(v)(7)(A), and the related Roth catch-up
availability requirement of section 414(v)(7)(B), should not apply in
the case of a participant who, under the Puerto Rico Code, is not
permitted to make designated Roth contributions.
The Treasury Department and the IRS have determined that providing
transition relief for dual-qualified plans is consistent with the
historical approach taken with respect to plans qualified under the
Puerto Rico Code if there is a difference in the United States and
Puerto Rico Codes that does not allow for the same treatment of
contributions made by participants in the United States and Puerto
Rico.\15\ Therefore, in response to these comments, the final
regulations do not include the rule set forth in proposed Sec.
1.414(v)-2(a)(5)(ii). Instead, Sec. 1.414(v)-2(a)(6) provides that the
Roth catch-up requirement of section 414(v)(7)(A) and the Roth catch-up
availability requirement of section 414(v)(7)(B) are treated as
satisfied for a taxable year with respect to a catch-up
[[Page 44536]]
eligible participant who is subject to section 1081.01 of the Puerto
Rico Code, if that taxable year begins before the effective date of any
future amendment to the Puerto Rico Code to provide for designated Roth
contributions.
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\15\ See, e.g., Notice 2002-4, 2002-1 CB 298, and TD 9072, 68 FR
40510, 40514 (July 8, 2003), which addressed the fact that catch-up
contributions were not permitted under the Puerto Rico Code but were
permitted under the United States Code (``These final regulations do
not affect the transitional relief granted in Notice 2002-4 that
provides that an applicable employer plan will not fail to satisfy
the universal availability requirement solely because another
applicable employer plan of the employer that is qualified under
Puerto Rico law does not provide for catch-up contributions.''). In
a September 28, 2015, report (JCX-132-15), the Joint Committee on
Taxation explained that, as a general matter, ``Federal law does not
require that the income tax laws in force in the United States also
be in force in . . . Puerto Rico.''
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Another commenter requested that the final regulations clarify how
the catch-up contribution rules apply to employees who move between the
mainland and Puerto Rico during the year. The final regulations do not
address this comment as it involves an interpretation of the Puerto
Rico Code and, therefore, is outside the scope of the final
regulations.
B. Rules of Operation for Implementing the Roth Catch-Up Requirement
1. Designated Roth Contributions That Are Treated as Catch-Up
Contributions for Purposes of the Roth Catch-Up Requirement
Under proposed Sec. 1.414(v)-2(b)(1), an elective deferral that is
determined to be a catch-up contribution at the time of contribution
under the timing rules in Sec. 1.414(v)-1(c)(3) of the existing
regulations (for example, an elective deferral that is a catch-up
contribution because it exceeds the section 401(a)(30) limit on
elective deferrals) would be required to be made as a designated Roth
contribution by a participant who is subject to the Roth catch-up
requirement only to the extent the participant has not previously made
elective deferrals as designated Roth contributions during the calendar
year or taxable year equal to the applicable dollar catch-up limit.
Thus, if a catch-up eligible participant's total elective deferrals
that are designated Roth contributions over the course of a calendar
year or taxable year (including, if applicable, contributions to a
pension-linked emergency savings account described in section 402A(e)
of the Code) equal or exceed the total elective deferrals that are
determined to be catch-up contributions, then the participant would
satisfy the Roth catch-up requirement.\16\
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\16\ This is also the case with respect to elective deferrals
that are determined to be catch-up contributions because the plan
would fail the actual deferral percentage (ADP) test under section
401(k)(3) if the plan did not correct under section 401(k)(8). The
determination of elective deferrals that are catch-up contributions
because they are in excess of the ADP limit in Sec. 1.414(v)-
1(b)(1)(iii) occurs in the plan year following the plan year for
which the elective deferrals are made.
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One commenter requested that the final regulations provide that
designated Roth contributions that are made prior to a participant's
elective deferrals for the calendar year reaching the section
401(a)(30) limit may, but are not required to, be taken into account
for purposes of determining whether the participant has satisfied the
Roth catch-up requirement. The commenter explained that some employers
have indicated that taking into account designated Roth contributions
that are made earlier in a calendar year would create administrative
burden and complexity.
In order to maintain flexibility for participants, Sec. 1.414(v)-
2(b)(1) of the final regulations retains the proposed rule that, for a
participant who is subject to the Roth catch-up requirement, an
elective deferral that is treated as a catch-up contribution at the
time of deferral is required to be a designated Roth contribution only
to the extent the participant has not previously made elective
deferrals that are designated Roth contributions during the taxable
year equal to the applicable dollar catch-up limit. However, as
explained in sections I and III.C.3.a of this Summary of Comments and
Explanation of Revisions (``Amendments to Regulations Under Sections
401(k) and 403(b)--Deemed Roth Catch-up Election'' and ``Prerequisite
to correct certain section 414(v)(7) failures under the new correction
methods''), in order to ease administrative burden for plans, in
determining when during the year to implement a deemed Roth election
under final regulation Sec. 1.401(k)-1(f)(5)(iii), a plan is not
required to take into account elective deferrals made by a participant
earlier in the year as designated Roth contributions. Thus, a plan may
provide that a deemed Roth election will be implemented with respect to
a participant once a participant's total elective deferrals for the
year (including any designated Roth contributions) equal the section
401(a)(30), 402(g)(7), or 457(b) limit, as applicable. Further, after
implementing the deemed Roth election, the plan would not be required
to recharacterize any designated Roth catch-up contributions made
pursuant to the deemed election as pre-tax for the purpose of counting
any designated Roth contributions made earlier in the year by the
participant toward satisfaction of the Roth catch-up requirement.
However, since the plan must also provide such a participant an
effective opportunity to make a new election that is different than the
deemed election, if a participant who is subject to the Roth catch-up
requirement makes an affirmative election to make pre-tax catch-up
contributions, the plan would be required to take into account any
elective deferrals made by the participant earlier in the year as
designated Roth contributions when determining the amount of the pre-
tax catch-up contributions to be corrected in order to comply with
section 414(v)(7) (such that the pre-tax catch-up contributions must be
corrected--that is, either distributed from the plan or corrected in
accordance with a correction method set forth in final regulation Sec.
1.414(v)-2(c)(2)--only to the extent that a participant's catch-up
contributions for the year exceed the participant's designated Roth
contributions made over the course of the year).
Another commenter requested clarification as to whether an in-plan
Roth rollover that is elected voluntarily by a participant under
section 402A(c)(4)(E) could be used to satisfy the Roth catch-up
requirement. The Treasury Department and the IRS have determined that
an in-plan Roth rollover that is elected by a participant voluntarily
under section 402A(c)(4)(E) may not be used to satisfy the Roth catch-
up requirement because the amount of the in-plan Roth rollover could be
attributable to contributions other than elective deferrals. However,
as described in section III.C.2 of this Summary of Comments and
Explanation of Revisions (``Additional permissible correction methods
for elective deferrals that exceed an applicable limit''), Sec.
1.414(v)-2(c)(2)(iii) of the final regulations generally retains the
provision of the proposed regulations permitting a plan to use the in-
plan Roth rollover correction method to correct a pre-tax elective
deferral that exceeds an applicable limit but does not satisfy the Roth
catch-up requirement.
2. Plans That Do Not Include a Qualified Roth Contribution Program
In accordance with section 402A(a), an applicable employer plan
may, but is not required to, include a qualified Roth contribution
program within the meaning of section 402A(b). In addition, under the
proposed regulations, an applicable employer plan that allows catch-up
contributions, but does not have a qualified Roth contribution program,
would not be required to adopt such a program. The plan would be
allowed to permit catch-up eligible participants who are not subject to
the Roth catch-up requirement to make catch-up contributions but not
permit catch-up eligible participants who are subject to the Roth
catch-up requirement to make catch-up contributions.
With respect to the universal availability requirement of Sec.
1.414(v)-1(e), proposed Sec. 1.414(v)-2(b)(2) would
[[Page 44537]]
provide that an applicable employer plan that does not include a
qualified Roth contribution program would not fail to satisfy the
universal availability requirement merely because the plan (or another
applicable employer plan maintained by the employer that does not
include a qualified Roth contribution program) does not permit catch-up
eligible participants who are subject to the Roth catch-up requirement
to make catch-up contributions. However, proposed Sec. 1.414(v)-
2(b)(2)(ii) also would provide that existing Sec. 1.414(v)-1(d)(4)
\17\ would not apply to an applicable employer plan that does not
include a qualified Roth contribution program and permits only catch-up
eligible participants who are not subject to the Roth catch-up
requirement to make catch-up contributions. As explained in the
preamble to the proposed regulations, Sec. 1.414(v)-1(d)(4) would not
apply to such a plan because not all catch-up eligible employees under
the plan would be able to make catch-up contributions.
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\17\ Generally, under Sec. 1.414(v)-1(d)(4), an applicable
employer plan does not violate Sec. 1.401(a)(4)-4 merely because
the group of employees for whom catch-up contributions are currently
available is not a group of employees that would satisfy the minimum
coverage requirements of section 410(b).
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Because the Roth catch-up wage threshold is slightly lower than the
wage threshold used in the definition of highly compensated employee
(HCE) under section 414(q)(1)(B), some non-HCEs may be subject to the
Roth catch-up requirement,\18\ and some HCEs may not be subject to the
Roth catch-up requirement (for example, because they did not receive
FICA wages for the preceding year). Thus, if a plan that does not
include a qualified Roth contribution program prohibits catch-up
eligible participants who are subject to the Roth catch-up requirement
from making catch-up contributions, while permitting other catch-up
eligible participants to make catch-up contributions, then the plan
might fail to satisfy the nondiscrimination test with respect to the
availability of catch-up contributions performed under Sec.
1.401(a)(4)-4. Accordingly, proposed Sec. 1.414(v)-2(b)(2)(ii) would
provide that such a plan would be permitted to also preclude one or
more catch-up eligible participants who are HCEs and who are not
subject to the Roth catch-up requirement (for example, because they did
not receive FICA wages from the employer sponsoring the plan for the
preceding year) from making catch-up contributions if doing so
facilitates satisfaction of Sec. 1.401(a)(4)-4 with respect to the
availability of catch-up contributions.
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\18\ If an employer makes the top-paid group election under
section 414(q)(1)(B)(ii), the number of non-HCEs that are over the
wage threshold used in the definition of HCE will be higher, and
thus the number of non-HCEs subject to the Roth catch-up requirement
will be higher.
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Commenters generally requested that the final regulations provide
that a plan will not be treated as failing to satisfy benefits, rights,
and features testing under section 401(a)(4) with respect to catch-up
contributions merely because the plan does not include a qualified Roth
contribution program. These commenters argued that, although some non-
HCEs (those who are subject to the Roth catch-up requirement) would not
be permitted to make catch-up contributions under such a plan design,
HCEs also generally would be excluded from making catch-up
contributions, and that it would be impractical to satisfy Sec.
1.401(a)(4)-4 by precluding one or more catch-up eligible participants
who are HCEs and who are not subject to the Roth catch-up requirement
from making catch-up contributions. One of these commenters requested
that, if the final regulations retain the approach in the proposed
regulations, the final regulations clarify how a plan that fails to
satisfy benefits, rights, and features testing with respect to catch-up
contributions could preclude one or more HCEs who are not subject to
the Roth catch-up requirement from making catch-up contributions in a
timely manner. Another commenter requested that, if the final
regulations do not treat Sec. 1.414(v)-1(d)(4) as applying, then
nondiscrimination testing for a plan that does not include a qualified
Roth contribution program should be based only on participants who are
age 50 and above, and not on the entire employee population.
The final regulations generally retain the rules of proposed Sec.
1.414(v)-2(b)(2) (although Sec. 1.414(v)-2(b)(2)(ii) is renumbered as
Sec. 1.414(v)-2(b)(3) in the final regulations). However, in response
to these comments, the final regulations clarify that, in the case of a
plan that does not include a qualified Roth contribution program (and,
therefore, may need to preclude one or more catch-up eligible
participants who are HCEs and who are not subject to the Roth catch-up
requirement from making catch-up contributions to facilitate
satisfaction of Sec. 1.401(a)(4)-4 with respect to the availability of
catch-up contributions), the plan will be deemed to satisfy Sec.
1.401(a)(4)-4 with respect to the availability of catch-up
contributions if the plan provides that all catch-up eligible
participants who are HCEs with net earnings from self-employment for
the preceding calendar year from the employer sponsoring the plan above
the Roth catch-up wage threshold are not permitted to make catch-up
contributions. This safe harbor provision may be used even if a plan
does not have any participants with net earnings from self-employment
for the preceding calendar year. In addition, Sec. 1.414(v)-2(b)(3) of
the final regulations provides that this safe harbor provision may be
used by a plan that includes a qualified Roth contribution program and,
in accordance with Sec. 1.414(v)-2(b)(4)(ii), (b)(4)(iii), or
(b)(4)(iv)(A), does not permit pre-tax catch-up contributions for one
or more employees who are not subject to section 414(v)(7) (that is,
one or more non-HCEs who are determined to be subject to the Roth
catch-up requirement solely due to an optional plan term providing for
aggregation of wages in accordance with Sec. 1.414(v)-2(b)(4)(ii),
(b)(4)(iii), or (b)(4)(iv)(A) of these regulations).
3. Coordination With Other Catch-Up Contributions
One commenter requested examples to illustrate the interaction
between the requirement that certain catch-up contributions be
designated Roth contributions and the rule permitting special catch-up
contributions for section 403(b) plans under section 402(g)(7) for
employees with at least 15 years of service. Two other commenters
requested clarification that the requirement that certain catch-up
contributions be designated Roth contributions does not apply to the
special section 403(b) catch-up contributions.
As described in Sec. 1.403(b)-4(c)(2) of the existing regulations,
the catch-up contributions described in section 414(v) may apply in a
year in which a participant also qualifies for the special section
403(b) catch-up contributions. In addition, Sec. 1.403(b)-4(c)(3)(iv)
provides that any catch-up amount contributed by an employee who is
eligible for both types of catch-up contributions is treated first as a
special section 403(b) catch-up contribution and then as a catch-up
contribution under section 414(v). Accordingly, the special section
403(b) catch-up contributions are not subject to section 414(v),
including the requirement under section 414(v)(7) that certain catch-up
contributions be designated Roth contributions.
One commenter requested examples to illustrate the application of
section 457(e)(18)(A)(ii), and another commenter requested
clarification that the requirement that certain catch-up contributions
be designated Roth contributions does not apply to the
[[Page 44538]]
special section 457(b)(3) catch-up contributions permitted for the last
three taxable years ending before an individual attains normal
retirement age. As described in the Background section of this Treasury
decision, if a catch-up eligible participant's limit under section
457(e)(18) is greater than the limit under section 457(b)(3)
(determined without regard to section 457(e)(18)), then a portion of
the catch-up contributions made to the eligible governmental 457(b)
plan by the participant is required to be designated Roth
contributions. As noted in footnote 5 of the preamble to the proposed
regulations, proposed regulations relating to the inclusion of a
qualified Roth contribution program in an eligible governmental 457(b)
plan were published in the Federal Register (81 FR 40548) and those
proposed regulations have not been finalized.
4. Determination of Employer Sponsoring the Plan
The determination as to whether the Roth catch-up requirement
applies to a catch-up eligible participant is based on the amount of
the participant's FICA wages for the preceding year ``from the employer
sponsoring the plan,'' but that phrase is not defined in section
414(v)(7). For purposes of determining an individual's FICA wages, the
term ``employer'' generally means the person for whom the individual
performs service as an ``employee'' (determined under the common law
standards for employee status set forth in Sec. 31.3121(d)-1(c)).
Thus, for purposes of determining the individual's FICA wages, the term
``employer'' generally refers solely to an individual's common law
employer.\19\ Because the phrase ``from the employer sponsoring the
plan'' modifies the reference to FICA wages in section 414(v)(7)(A),
the determination of whether the Roth catch-up requirement applies to a
participant would generally follow the FICA rules and be based on the
FICA wages from the participant's common law employer.
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\19\ In general, FICA wages are determined separately by related
employers. See Sec. 31.3121(a)(1)-1(a)(3) (``If during a calendar
year the employee receives remuneration from more than one employer,
the annual wage limitation does not apply to the aggregate
remuneration received from all of such employers, but instead
applies to the remuneration received during such calendar year from
each employer.''). See also Sec. 31.3121(s)-1(a) (``For purposes of
section . . . 3121(a)(1), except as otherwise provided . . ., when
two or more related corporations concurrently employ the same
individual and compensate that individual . . ., each of the
corporations is considered to have paid only the remuneration it
actually disburses to that individual.'').
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Proposed Sec. 1.414(v)-2(b)(3) would provide that, with respect to
each catch-up eligible participant who is subject to the Roth catch-up
requirement, the term ``employer sponsoring the plan'' refers only to
the participant's common law employer contributing to the plan. Under
the proposed regulation, the employer sponsoring the plan would not
include other entities that are treated as a single employer with a
catch-up eligible participant's common law employer under section
414(b), (c), (m), or (o). Some commenters agreed with the approach in
the proposed regulation. Other commenters requested that the final
regulation provide an option to aggregate FICA wages from different
employers in certain situations, in order to ease plan administration
by aligning determination of applicability of the Roth catch-up
requirement with the employers' general payroll practices. These
commenters argued that this aggregation option would be particularly
helpful in situations involving entities that are aggregated with the
participant's common law employer under section 414(b), (c), (m), or
(o) and situations involving a common paymaster in accordance with
section 3121(s).
Section 1.414(v)-2(b)(4)(i) of the final regulations, which is
renumbered from proposed Sec. 1.414(v)-2(b)(3), provides that, with
respect to each catch-up eligible participant who is subject to the
Roth catch-up requirement, the term ``employer sponsoring the plan''
refers to the participant's common law employer contributing to the
plan. However, in response to comments, Sec. 1.414(v)-2(b)(4)(ii)
provides that if the common law employer uses a common paymaster in
accordance with section 3121(s), the plan may provide that the
employee's common law employer is aggregated with one or more other
employers using that common paymaster and treat the aggregated
employers as a single employer sponsoring the plan for purposes of
section 414(v)(7) and Sec. 1.414(v)-2. Section 1.414(v)-2(b)(4)(iii)
also provides that if the common law employer is a member of a group of
employers that are treated as a single employer under the rules of
section 414(b), (c), (m), or (o), the plan may provide that the
employee's common law employer is aggregated with one or more other
employers in that group of employers and treat the aggregated employers
as a single employer sponsoring the plan for purposes of section
414(v)(7) and Sec. 1.414(v)-2. For example, a plan could provide for
aggregation of selected related employers for purposes of section
414(v)(7) by listing the employers being aggregated in the plan
document. In cases of aggregation in accordance with Sec. 1.414(v)-
2(b)(4)(ii) or (iii), the employee's wages from the common law employer
and from the one or more other employers that are aggregated with the
common law employer are treated as wages from the employer sponsoring
the plan.
One commenter requested that the final regulations address how
applicability of the Roth catch-up requirement is determined for a
calendar year for which wages paid to an employee by a predecessor
employer are attributed to the employee's common law employer who is a
successor employer on account of an asset purchase in accordance with
Sec. 31.3121(a)(1)-1(b). Specifically, the commenter requested that
the final regulations provide a safe harbor permitting plan
administrators to rely on wage information as reported on a Form W-2
issued by the successor employer for the calendar year of the asset
purchase in accordance with the standard or alternate procedure for
Form W-2 reporting set forth in Rev. Proc. 2004-53, 2004-34 IRB
320.\20\
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\20\ Under the standard procedure set forth in Rev. Proc. 2004-
53, the predecessor and successor employers report the wages each
pays during the calendar year in which the asset purchase occurs on
a separate Form W-2. Despite the separate Form W-2 reporting, the
wages reported by the successor employer in Box 3 of the Form W-2
cannot exceed the difference between the Social Security wage base
limit for the year and the wages paid by the predecessor employer
during the calendar year. Under the alternate procedure, the
successor employer reports all of the wages paid by both the
predecessor employer and the successor employer in the calendar year
in which the asset purchase occurs on a single Form W-2 (with the
wages reported in Box 3 limited to the Social Security wage base
limit for the calendar year).
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Section 1.414(v)-2(b)(4)(iv) of the final regulations provides such
a safe harbor. Thus, pursuant to Sec. 1.414(v)-2(b)(4)(iv)(A), if a
successor employer files a Form W-2 for the calendar year of the asset
purchase in accordance with the alternate procedure set forth in Rev.
Proc. 2004-53, then a plan that is sponsored by the successor employer
(or an entity that is aggregated with the successor employer in
accordance with final regulation Sec. 1.414(v)-2(b)(4)(ii) or (iii))
may provide that all of the wages reported in Box 3 of the Form W-2 are
treated as wages from the employer sponsoring the plan for purposes of
determining applicability of the Roth catch-up requirement. So, too,
pursuant to Sec. 1.414(v)-2(b)(4)(iv)(B), if a successor employer
files a Form W-2 for the calendar year of the asset purchase
[[Page 44539]]
in accordance with the standard procedure set forth in Rev. Proc. 2004-
53, then a plan that is sponsored by the successor employer (or an
entity that is aggregated with the successor employer in accordance
with final regulation Sec. 1.414(v)-2(b)(4)(ii) or (iii)) may provide
that the wages paid by the successor employer for the year that are
treated as wages from the employer sponsoring the plan for purposes of
determining applicability of the Roth catch-up requirement are limited
to the wages reported in Box 3 of the Form W-2.
One commenter requested that the final regulations address the
treatment, for purposes of section 414(v)(7), of an employee who
receives wages from an entity that is disregarded as an entity separate
from its owner in accordance with Sec. 301.7701-2(c)(2)(i) (that is,
the entity has not made an election under Sec. 301.7701-3(b)(1)(ii) to
be classified as a corporation). The commenter noted that a disregarded
entity is generally disregarded for Federal income tax purposes but is
treated as a separate entity for employment tax purposes. Section
1.414(v)-2(b)(4)(v) of the final regulations provides that the owner of
the disregarded entity is treated as the employer sponsoring the plan
and the employee's wages from the employer sponsoring the plan include
the employee's wages from the disregarded entity and from its owner.
One commenter suggested that, for purposes of the Roth catch-up
requirement as applied to a multiemployer plan, the employer sponsoring
the plan is the joint board of trustees because section 3(16)(B) of
ERISA defines the ``plan sponsor'' of a multiemployer plan as the joint
board of trustees (rather than the contributing employers). Under the
interpretation of section 414(v)(7)(A) suggested by the commenter, the
employees of those other employers would not be subject to section
414(v)(7)(A) (because those other employers are merely signatories of
the collective bargaining agreement pursuant to which their employees
participate in the multiemployer plan and are contributors to that
plan, but would not be employees of the employer sponsoring the
plan).\21\ As explained in the preamble to the proposed regulations,
the Treasury Department and the IRS do not agree that this is a
reasonable interpretation of section 414(v)(7)(A) because the rules in
title 29 of the United States Code, which includes section 3(16)(B) of
ERISA, are separate from the rules of the Internal Revenue Code in
title 26 of the United States Code, and title 29 of the United States
Code does not include any provisions that directly apply to, or are
parallel to, the Code's catch-up contribution rules. Rather, in the
context of the Roth catch-up requirement, the employer sponsoring the
plan is the common law employer that is the source of the participant's
FICA wages and contributions to the multiemployer plan (but the plan
may provide for aggregation of FICA wages from certain related
employers as described earlier in this preamble section).
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\21\ Even under the commenter's interpretation, an employee of
the joint board of trustees who has wages from that employer in
excess of the Roth catch-up wage threshold would be subject to
section 414(v)(7)(A) because the joint board of trustees is the
employer sponsoring the plan.
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5. Plans With More Than One Employer Sponsoring the Plan
For a plan that has more than one employer sponsoring the plan,
proposed Sec. 1.414(v)-2(b)(4) would apply the Roth catch-up
requirement on the basis of FICA wages (if any) for the preceding
calendar year solely from a participant's common law employer without
aggregating those wages with the FICA wages from other employers,
including employers that participate in the same plan or employers that
are treated as a single employer together with the common law employer
under section 414(b), (c), (m), or (o). Thus, under the proposed
regulations, a catch-up eligible participant who had FICA wages
exceeding $145,000 (as adjusted) in the preceding calendar year from
any employer other than the employer sponsoring the plan (as defined
with respect to the participant in accordance with proposed Sec.
1.414(v)-2(b)(3)) would not be subject to the Roth catch-up requirement
under the plan in the current year if the participant did not also have
more than $145,000 (as adjusted) of FICA wages for the preceding year
from the employer sponsoring the plan. Section 1.414(v)-2(b)(5) of the
final regulations, which was renumbered from proposed Sec. 1.414(v)-
2(b)(4), includes that same rule related to wages from an employer
other than the employer sponsoring the plan, except that the rule takes
into account the new optional aggregation rules of Sec. 1.414(v)-
2(b)(4) for determining the employer sponsoring the plan (that is, the
rules allowing for aggregation of wages in situations involving
controlled groups and common paymasters).
C. Treatment of Pre-Tax Catch-Up Contributions That Are Required To Be
Designated Roth Contributions Under Section 414(v)(7)
1. Correcting a Violation of the Section 414(v)(7) Roth Catch-Up
Requirement
As explained in the Background section of the preamble to the
proposed regulations, section 414(v)(7)(A) provides that section
414(v)(1) applies to catch-up contributions made by a participant who
is subject to the Roth catch-up requirement only if the catch-up
contributions are designated Roth contributions. If a participant who
is subject to the Roth catch-up requirement makes a pre-tax elective
deferral in excess of an applicable limit, then section 414(v)(1) will
not apply to that elective deferral and the plan will fail to be
qualified unless the plan corrects the failure. A plan is permitted to
correct this type of error by distributing the additional elective
deferrals that are not catch-up contributions under section 414(v)(1)
from the plan in accordance with a permitted correction method specific
to the limit on elective deferrals that the additional elective
deferrals exceeded (for example, the correction method in Sec.
1.402(g)-1(e) for elective deferrals that exceeded the section
401(a)(30) limit, the correction method in section 6.06(1) and (2) of
Revenue Procedure 2021-30, 2021-31 IRB 172, for elective deferrals that
resulted in the participant's annual additions exceeding the section
415(c) limit, or the correction method in Sec. 1.401(k)-2(b)(2) or
Appendix B, section 2.01, of Revenue Procedure 2021-30 for elective
deferrals that exceeded the ADP limit).
One commenter requested clarification regarding the treatment of
excess contributions (as defined in Code section 401(k)(8)(B)) as
catch-up contributions that are not required to be distributed under
Sec. 1.401(k)-2(b)(4)(v) in the case of a plan with a plan year other
than the calendar year and an HCE who is not subject to the Roth catch-
up requirement for part of the plan year and is subject to the Roth
catch-up requirement for the remainder of the plan year. Under Sec.
1.401(k)-2(b)(1)(ii), a plan may permit an HCE with elective
contributions for a year that includes both pre-tax elective
contributions and designated Roth contributions to elect whether the
excess contributions are to be attributed to pre-tax elective
contributions or designated Roth contributions. Consistent with that
rule, a plan may permit an HCE who was subject to the Roth catch-up
requirement for only part of the plan year to elect whether the excess
[[Page 44540]]
contributions that are treated as catch-up contributions are
contributions that were subject to the Roth requirement or were
permitted to be pre-tax contributions.
2. Additional Permissible Correction Methods for Elective Deferrals
That Exceed an Applicable Limit
As an alternative to making a corrective distribution, proposed
Sec. 1.414(v)-2(c)(2) would permit a plan to use either of two new
methods to correct a section 414(v)(7) failure.
a. Form W-2 Correction Method
Under the correction method set forth in proposed Sec. 1.414(v)-
2(c)(2)(ii), a plan would be permitted to correct a participant's pre-
tax catch-up contribution that was required to be a designated Roth
contribution by transferring the elective deferral (adjusted for
allocable gain or loss) from the participant's pre-tax account to the
participant's designated Roth account and reporting the contribution
(not adjusted for allocable gain or loss) as a designated Roth
contribution on the participant's Form W-2 for the year of the deferral
(that is, reporting the contribution as if it had been correctly made
as a designated Roth contribution). As explained in Section III.C.2.a
of the preamble to the proposed regulations (``Form W-2 Correction
Method''), the contribution (not adjusted for allocable gain or loss)
would be includible in the participant's gross income for the year of
the deferral as if the contribution had been correctly made as a
designated Roth contribution. However, this method would not be
permitted to be used if the participant's Form W-2 for that year has
already been filed or furnished to the participant.
One commenter requested that the final regulations permit a
correction under the Form W-2 correction method to be reported on a
participant's amended Form W-2 for the year of the deferral (in other
words, permit the Form W-2 correction method to be used even if the
participant's Form W-2 for the year of the deferral has already been
filed or furnished to the participant). The final regulations do not
reflect this request because the Treasury Department and the IRS have
determined that such an approach would be overly burdensome to affected
participants, who might be required to file amended income tax returns
to reflect the amended Forms W-2, and create additional administrative
burden for the IRS, which would be required to process any amended
Federal income tax returns.
Another commenter explained that the Form W-2 correction method is
unlikely to be effectively implemented by multiemployer plans because
those plans do not have access to or control over their contributing
employers' payroll systems. However, as described in section III.C.2.b
of this Summary of Comments and Explanation of Revisions (``In-plan
Roth rollover correction method''), these final regulations also
include an in-plan Roth rollover correction method as an alternative to
distribution.
Accordingly, the final regulations generally retain the Form W-2
correction method as set forth in proposed Sec. 1.414(v)-2(c)(2)(ii)
without modification. However, the final regulations clarify the method
for calculating earnings and losses for purposes of determining the
amount to be transferred from a participant's pre-tax account to the
participant's designated Roth account, as described in section
III.C.2.b of this Summary of Comments and Explanation of Revisions
(``In-plan Roth rollover correction method'').
b. In-Plan Roth Rollover Correction Method
Under proposed Sec. 1.414(v)-2(c)(2)(iii), a plan would be
permitted to correct a participant's pre-tax catch-up contribution that
was required to be a designated Roth contribution through an in-plan
Roth rollover in accordance with section 402A(c)(4)(E). As explained in
Section III.C.2.b of the preamble to the proposed regulations (``In-
Plan Roth Rollover Correction Method''), a plan would directly roll
over the elective deferral (adjusted for allocable gain or loss) from
the participant's pre-tax account to the participant's designated Roth
account and report the amount of the in-plan Roth rollover on Form
1099-R (Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc.) for the year of
rollover. The provisions of Notice 2010-84, 2010-51 IRB 872, and Notice
2013-74, 2013-52 IRB 819, would generally apply to an in-plan Roth
rollover used to correct a section 414(v)(7) failure. Thus, the amount
directly rolled over to the participant's designated Roth account would
be the same as the amount reported on Form 1099-R, and the contribution
(adjusted for allocable gain or loss) would be includible in the
participant's gross income for the year of the rollover.
One commenter requested that the final regulations not require that
an amount directly rolled over to a participant's designated Roth
account be adjusted for allocable gain or loss. The final regulations
do not reflect this comment because the amount directly rolled over to
the participant's designated Roth account would be includible in the
participant's gross income for the year of the rollover, which may be a
later year than the year the contribution would have been includible if
it had been made correctly as a designated Roth contribution. Thus, the
adjustment for any allocable gain would serve to balance any delayed
inclusion in gross income.
The commenter also requested that, if the final regulations require
that the amount directly rolled over to a participant's designated Roth
account be adjusted for allocable gain or loss, the final regulations
maintain flexibility as to the method a plan uses to calculate the gain
or loss. Another commenter requested that, with respect to both the
Form W-2 and in-plan Roth rollover correction methods, the final
regulations provide a rule similar to Sec. 1.401(k)-2(b)(2)(iv), under
which a plan generally may use any reasonable method for computing the
income allocable to excess contributions or use the alternative method
under Sec. 1.401(k)-2(b)(2)(iv)(C). In response to these comments,
Sec. 1.414(v)-2(c)(2)(ii) and (iii) of the final regulations clarifies
that the adjustment for earnings or losses for an in-plan Roth rollover
correction must be calculated in accordance with the flexible standard
provided under Sec. 1.402(g)-1(e)(5). A similar clarification applies
for purposes of determining the amount to be transferred to the
participant's designated Roth account if a section 414(v)(7) failure is
corrected under the Form W-2 method.
Commenters also requested clarification regarding the extent to
which an in-plan Roth rollover that is used to correct a section
414(v)(7) failure is different than an in-plan Roth rollover under
section 402A(c)(4)(E). One commenter requested that the final
regulations clarify that the participant election provision of section
402A(c)(4)(E)(i) does not apply to an in-plan Roth rollover that is
used to correct a section 414(v)(7) failure. The Treasury Department
and the IRS agree that an in-plan Roth rollover correction is permitted
to be made only by a plan and may not be elected voluntarily by a
participant. Therefore, in response to these comments, Sec. 1.414(v)-
2(c)(2)(iii) requires that the rules of section 402A(c)(4)(E)(ii) and
(iii) (rather than section 402A(c)(4)(E) in its entirety) apply to the
correction.
Similarly, some commenters requested clarification that a plan may
provide for the use of the in-plan Roth rollover method to correct a
section
[[Page 44541]]
414(v)(7) failure even if the plan does not permit participants to
elect in-plan Roth rollovers under section 402A(c)(4)(E). As explained
in Q&A-2 of Notice 2010-84, a participant may elect an in-plan Roth
rollover only if the plan provides for such rollovers. However, the
Treasury Department and the IRS agree that, because an in-plan Roth
rollover correction for a section 414(v)(7) failure is implemented
pursuant to plan terms rather than a participant's voluntary election,
a plan may provide for the use of the in-plan Roth rollover correction
method even if the plan does not permit participants to elect in-plan
Roth rollovers under section 402A(c)(4)(E).
One commenter requested clarification that the use of the in-plan
Roth rollover correction method is not a benefit, right, or feature
that is subject to section 401(a)(4). Under existing Sec. 1.401(a)(4)-
4(e)(3)(iii)(I), the right to make rollover contributions and transfers
to and from a plan (which would include the right to make an in-plan
Roth rollover) is a right or feature. However, a plan's use of the in-
plan Roth rollover correction method is an administrative detail not
reasonably expected to be of meaningful value to an employee under
Sec. 1.401(a)(4)-4(e)(3)(ii)(C) and not a benefit, right, or feature
for purposes of section 401(a)(4) and Sec. 1.401(a)(4)-4.
Commenters also requested clarification regarding the taxable year
in which the 5-taxable-year period for a qualified distribution under
section 402A(d)(2)(B) begins if an amount that is transferred pursuant
to the Form W-2 correction method, or directly rolled over pursuant to
the in-plan Roth rollover correction method, is the first contribution
to a participant's designated Roth account. One commenter requested
that the final regulations provide that, under either correction
method, the 5-taxable-year period begins in the year in which the pre-
tax elective deferral was made, and another commenter requested
confirmation that an amount directly rolled over to a participant's
designated Roth account pursuant to an in-plan Roth rollover correction
is treated in the same manner as a participant-initiated Roth
contribution for purposes of determining the 5-taxable-year period.
Under section 402A(d)(2)(B), for purposes of determining whether a
payment or distribution from a designated Roth account is treated as a
qualified distribution, the 5-taxable-year period generally begins with
``the first taxable year for which the individual made a designated
Roth contribution to any designated Roth account established for such
individual under the same applicable retirement plan. . . .'' \22\ If
an amount that is transferred pursuant to the Form W-2 correction
method or directly rolled over pursuant to the in-plan Roth rollover
correction method is the first contribution to a participant's
designated Roth account, then the 5-taxable-year-period begins with the
taxable year for which the amount transferred or directly rolled over
is includible in the participant's gross income (which, depending on
the circumstances, could be the same taxable year in which the pre-tax
elective deferral was made or the next taxable year).
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\22\ As explained in Q&A-8 of Notice 2013-74, if an in-plan Roth
rollover is the first contribution made to an employee's designated
Roth account, the 5-taxable-year period begins on the first day of
the first taxable year in which the employee makes the in-plan Roth
rollover.
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Commenters also requested that the final regulations provide that
an in-plan Roth rollover that is made as a correction for a section
414(v)(7) failure and distributed within the 5-taxable-year period that
begins on January 1 of the year of the correction is not subject to the
5-year recapture rule under sections 402A(c)(4)(D) and
408A(d)(3)(F).\23\ Commenters argued that the 5-year recapture rule
should not apply in this circumstance because, if the pre-tax elective
deferral had been correctly made as a designated Roth contribution,
then the 5-year recapture rule would not apply to a later distribution
of that designated Roth contribution.
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\23\ Under section 402A(c)(4)(D), the 5-year recapture rules of
section 408A(d)(3)(F) apply for purposes of section 402A(c)(4). Q&A-
12 of Notice 2010-84 explains that, pursuant to sections
402A(c)(4)(D) and 408A(d)(3)(F), if an amount allocable to the
taxable amount of an in-plan Roth rollover is distributed within the
5-taxable-year period beginning with the first day of the
participant's taxable year in which the rollover was made, the
amount distributed is treated as includible in gross income for the
purpose of applying section 72(t). Therefore, if a plan distributes
any part of an in-plan Roth rollover within this 5-taxable-year
period, the distribution is subject to a 10 percent additional tax
under section 72(t) unless an exception applies under section
72(t)(2), or the distribution is allocable to any nontaxable portion
of the in-plan Roth rollover.
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The final regulations do not reflect these comments with respect to
the 5-taxable-year period and the 5-year recapture rule because the
Treasury Department and the IRS have determined that aligning the in-
plan Roth rollover correction method with the existing provisions of
section 402A(c)(4)(E)(ii) and (iii) would facilitate sound tax
administration (for example, by requiring that the correction be
consistently treated as an in-plan Roth rollover for purposes of Form
1099-R reporting). Thus, for example, if an in-plan Roth rollover that
is made as a correction for a section 414(v)(7) failure is distributed
within the 5-taxable-year period that begins on January 1 of the year
in which the in-plan Roth rollover is made, then the distribution would
be subject to a 10 percent additional tax under section 72(t) unless an
exception applies under section 72(t)(2).
c. Consistency Requirements for Choice of Correction Method
Under proposed Sec. 1.414(v)-2(c)(2)(i), a plan would be permitted
to provide for either correction method but, with respect to a plan
year, the plan would be required to apply the same correction method
for all participants with elective deferrals in excess of the same
applicable limit.
Commenters requested that the final regulations not include the
requirement that, with respect to a plan year, a plan apply the same
correction method for all participants with elective deferrals in
excess of the same applicable limit. Commenters argued that this
requirement would discourage the use of the Form W-2 correction method
due to the possibility that elective deferrals for some participants
might be corrected using the Form W-2 correction method but other
participants with elective deferrals in excess of the same applicable
limit might not be identified until after the Forms W-2 for the year of
the deferral have been filed or furnished to the participants. In such
case, the in-plan Roth rollover correction method could not be used
with respect to those later identified participants and their
additional elective deferrals would be required to be distributed from
the plan in accordance with a permitted correction method specific to
the limit on elective deferrals that the additional elective deferrals
exceeded.
In response to these comments, the final regulations do not require
that, with respect to a plan year, a plan apply the same correction
method for all participants with elective deferrals in excess of the
same applicable limit. Instead, Sec. 1.414(v)-2(c)(2)(i) provides
flexibility by merely requiring that a plan apply the same correction
method for similarly situated participants. Section 1.414(v)-2(c)(2)(i)
provides further that the selection of which correction method applies
may not be based on the investment returns earned in participants'
accounts. For example, a plan may provide for correction using the Form
W-2 correction method for all participants for whom the Forms W-2 for
that year have not been filed or
[[Page 44542]]
furnished and for correction using the in-plan Roth rollover correction
method for all other participants.
3. General Correction Requirements and Deadlines To Correct
a. Prerequisite To Correct Certain Section 414(v)(7) Failures Under the
New Correction Methods
Under proposed Sec. 1.414(v)-2(c)(3)(i), a plan would be eligible
to use the Form W-2 or in-plan Roth rollover correction method with
respect to pre-tax elective deferrals that exceed a statutory limit
described in Sec. 1.414(v)-1(b)(1)(i) (such as contributions that
exceed the section 401(a)(30) limit or that result in the participant's
annual additions exceeding the section 415(c) limit) only if the plan
sponsor or plan administrator has in place practices and procedures
designed to result in compliance with section 414(v)(7) at the time an
elective deferral is made.\24\ A plan would not meet this requirement
unless the plan provides for a deemed Roth catch-up election in
accordance with proposed Sec. 1.401(k)-1(f)(5)(iii) and (iv). Under
the deemed Roth catch-up election approach, if a participant who is
subject to the Roth catch-up requirement has made pre-tax elective
deferrals for a calendar year that equal the section 401(a)(30) limit
for the taxable year that begins in the calendar year, then subsequent
elective deferrals made by the participant in the calendar year would
automatically be made as designated Roth contributions, even if the
participant has not made an affirmative election to make catch-up
contributions as designated Roth contributions. Similarly, if such a
participant has made pre-tax elective deferrals for a limitation year
that result in the participant's annual additions for the limitation
year equaling the section 415(c) limit, then subsequent elective
deferrals made by the participant in the limitation year would
automatically be treated as designated Roth contributions.
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\24\ A plan would not be required under proposed Sec. 1.414(v)-
2(c)(3)(i) to have such practices and procedures in place in order
to correct a pre-tax catch-up contribution that is a catch-up
contribution because it exceeds an employer-provided limit as
described in Sec. 1.414(v)-1(b)(1)(ii). A plan would also not be
required to have such practices and procedures in place in order to
correct a pre-tax elective deferral that is a catch-up contribution
because it exceeds the ADP limit as described in Sec. 1.414(v)-
1(b)(1)(iii). This is because these elective deferrals are not
determined to be catch-up contributions under Sec. 1.414(v)-1(c)(3)
until the last day of the plan year of deferral or in the following
plan year.
---------------------------------------------------------------------------
Although commenters generally agreed that a plan should be
permitted to provide for a deemed Roth catch-up election, commenters
requested that the final regulations not include the proposed
requirement that a plan provide for the deemed Roth catch-up election
in order for the Form W-2 or in-plan Roth rollover correction method to
be used to correct a pre-tax elective deferral that exceeds a statutory
limit. Commenters argued that a deemed Roth catch-up election could be
viewed as impractical or less efficient than collecting affirmative
designated Roth contribution elections, would need to be negotiated
with respect to collectively bargained plans, and potentially could be
prohibited under State or local law.
Section 1.414(v)-2(c)(3)(i)(B) of the final regulations generally
retains the requirement that a plan provide for a deemed Roth catch-up
election in order for the Form W-2 or in-plan Roth rollover correction
method to be used to correct a pre-tax elective deferral that exceeds a
statutory limit.\25\ However, the Treasury Department and the IRS note
that Sec. 1.401(k)-1(f)(5)(iv) of the final regulations also retains
the requirement that a plan offer to a participant who is subject to a
deemed Roth catch-up contribution election an effective opportunity to
make a different election (that is, an election to make pre-tax catch-
up contributions or to make no catch-up contributions). The Treasury
Department and the IRS believe that concerns relating to compliance
with the terms of a collective bargaining agreement or applicable State
or local law would be mitigated by a participant's ability to make an
election to override any deemed Roth treatment by the plan.
---------------------------------------------------------------------------
\25\ The final regulations do not include the proposed
requirement that if a participant who is subject to the deemed Roth
catch-up election has made pre-tax elective deferrals for a
limitation year that result in the participant's annual additions
for the limitation year equaling the section 415(c) limit, then
subsequent elective deferrals made by the participant in the
limitation year must automatically be treated as designated Roth
contributions.
---------------------------------------------------------------------------
In addition, in response to commenters and as noted previously in
section III.B.1. of this preamble, the final regulations reduce the
potential administrative burden of this requirement by removing the
requirement that a plan take into account any designated Roth
contributions that a participant made earlier in a calendar year for
purposes of applying the deemed Roth catch-up election. Thus, under the
final regulations, in order for a plan to use the Form W-2 or in-plan
Roth rollover correction method to correct a pre-tax elective deferral
that exceeds a statutory limit, the plan must provide that the elective
deferrals of a participant who is subject to the Roth catch-up
requirement are automatically treated as designated Roth contributions
either: (1) after the participant's total elective deferrals made
during the calendar year (including elective deferrals made as
designated Roth contributions) exceed the section 401(a)(30) limit on
elective deferrals for the taxable year that begins in the calendar
year, or (2) after the participant's pre-tax elective deferrals made
during the calendar year exceed the section 401(a)(30) limit on
elective deferrals for the taxable year that begins in the calendar
year.
In addition, Sec. 1.414(v)-2(c)(3)(i)(B) clarifies that, although
a plan must provide a participant who is subject to the deemed Roth
catch-up election with an effective opportunity to make a new election
that is different than the deemed election, if a plan implements a
participant's affirmative pre-tax catch-up contribution election, the
plan must then determine whether the participant's affirmative pre-tax
catch-up contribution election is permissible (taking into account any
designated Roth contributions made by the participant earlier in the
calendar year). If the participant's affirmative pre-tax catch-up
contribution election is impermissible, then the section 414(v)(7)
failure generally must be corrected.
The final regulations also provide that, in the case of an employee
participating in a section 403(b) plan for whom the section 402(g)
limit is increased pursuant to section 402(g)(7), the plan is permitted
to provide that the automatic treatment of additional elective
deferrals as designated Roth contributions applies either: (1) after
the employee's elective deferrals under the plan for the calendar year
exceed the section 401(a)(30) limit on elective deferrals for the
taxable year that begins in the calendar year, increased by the amount
described in section 402(g)(7)(A), or (2) after the employee's pre-tax
elective deferrals under the plan for the calendar year exceed the
section 401(a)(30) limit on elective deferrals for the taxable year
that begins in the calendar year, increased by the amount described in
section 402(g)(7)(A).
Similarly, the final regulations provide that, in the case of an
eligible governmental 457(b) plan, the automatic treatment of
additional elective deferrals as designated Roth contributions
generally applies with respect to the corresponding limit of section
457(b)(2). However, a plan is permitted to provide that the automatic
treatment of additional elective deferrals as designated Roth
contributions applies once the amount deferred under the
[[Page 44543]]
plan for the taxable year exceeds the section 457(b)(3) limit for the
participant.
Under proposed Sec. 1.414(v)-2(c)(3)(ii), a plan would not fail to
meet the requirement to have in place practices and procedures that are
designed to result in compliance with the Roth catch-up requirement at
the time an elective deferral is made merely because the plan
determines the applicability of the Roth catch-up requirement to a
participant solely on the basis of the participant's FICA wages from
the employer sponsoring the plan for the preceding calendar year as
reported on a timely-filed Form W-2 with respect to the participant.
However, as explained in section III.C.3.a of the preamble to the
proposed regulations (``Prerequisite to Correct Certain Section
414(v)(7) Failures Under the New Correction Methods''), the fact that a
plan would not fail to meet the requirement to have in place practices
and procedures did not mean that the plan would not have to correct any
pre-tax catch-up contributions that should have been designated Roth
contributions if the amount of a participant's FICA wages for the
preceding calendar year that is timely reported on a Form W-2 is later
determined to be incorrect. The Treasury Department and the IRS invited
comments on whether there are scenarios in which it would not be
appropriate to require correction of pre-tax catch-up contributions
that are required to be designated Roth contributions on the basis of a
subsequent determination that the amount of FICA wages reported on the
Form W-2 was incorrect. The final regulations retain the rule included
in proposed Sec. 1.414(v)-2(c)(3)(ii). However, in response to
comments received and as explained in section III.C.4 of this Summary
of Comments and Explanation of Revisions (``Correction not required in
certain circumstances''), the final regulations do not require the
correction of a section 414(v)(7) failure if a participant became
subject to section 414(v)(7)(A) solely because the participant's FICA
wages for the calendar year preceding the calendar year in which the
taxable year begins were not determined to exceed the Roth catch-up
wage threshold until after the deadline for correction in Sec.
1.414(v)-2(c)(3)(iii).
b. Deadline to Correct Section 414(v)(7) Failures
Under proposed Sec. 1.414(v)-2(c)(3)(iii), the deadline to correct
a section 414(v)(7) failure would depend on which limit is the basis
for the pre-tax elective deferral being designated a catch-up
contribution. For example, if the elective deferral is a catch-up
contribution because it exceeds the section 401(a)(30) limit on
elective deferrals, then, consistent with Sec. 1.402(g)-1(e), the
deadline to complete the corrective steps under proposed Sec.
1.414(v)-2(c)(2) would be April 15 of the calendar year following the
calendar year for which the elective deferral was made. Further, the
proposed regulations would include separate deadlines with respect to
the section 415(c) limit and with respect to the ADP limit or an
employer-provided limit.
Commenters generally recommended that the correction deadlines set
forth in the proposed regulations be simplified and that a later
deadline should be provided under the final regulations. Commenters
provided various suggestions for a single correction deadline (for
example, the close of the calendar year following the calendar year in
which the pre-tax elective deferrals were made) or for extended
correction deadlines in certain circumstances (for example, with
respect to the ADP limit, 12 months after the close of the plan year in
which the excess contribution arose). One commenter also requested the
consideration of correction options that would limit administrative
burden to plans and prevent double taxation for participants (for
example, by not requiring the inclusion of a pre-tax deferral in excess
of the section 401(a)(30) limit in a participant's gross income for the
year in which the deferral was made and for the year in which the
participant receives a corrective distribution).
In response to these comments, Sec. 1.414(v)-2(c)(3)(iii) of the
final regulations provides that, if a section 414(v)(7) failure arises
with respect to an elective deferral that is a catch-up contribution
because it exceeds a statutory limit within the meaning of Sec.
1.414(v)-1(b)(1) (which would include, for example, the section
401(a)(30) limit and the section 415(c) limit), the deadline to
complete all corrective steps required under Sec. 1.414(v)-2(c)(2) in
order to avoid a qualification failure is the last day of the taxable
year following the taxable year for which the elective deferral was
made. If the section 414(v)(7) failure arises with respect to an
elective deferral that is a catch-up contribution because it exceeds an
employer-provided limit as described in Sec. 1.414(v)-1(b)(1)(ii) or
the ADP limit, the deadline to complete the corrective steps required
under Sec. 1.414(v)-2(c)(2) in order to avoid a qualification failure
is the last day of the plan year following the plan year for which the
catch-up contribution was made.
However, a pre-tax elective deferral that must be corrected due to
a section 414(v)(7) failure is not treated as a catch-up contribution
prior to the date that the failure is corrected under Sec. 1.414(v)-
2(c)(2). This means that if there are consequences for failing to be a
catch-up contribution which apply before the deadline for making the
correction in Sec. 1.414(v)-2(c)(3)(iii), those consequences will
apply with respect to the additional elective deferral (even if the
correction is made by that deadline).
For example, under Sec. 1.414(v)-2(c)(3)(iii)(A), in the case of
an elective deferral that is a catch-up contribution because it exceeds
the section 401(a)(30) limit on elective deferrals, if all corrective
steps required under Sec. 1.414(v)-2(c)(2) are not completed by April
15 following the close of the taxable year for which the elective
deferral was made, then the excess deferral will not be treated as
having been corrected by the deadline in Sec. 1.402(g)-1(e)(2)(ii).
Thus, the excess deferral will be subject to the tax treatment rules of
Sec. 1.402(g)-1(e)(8)(iii). Similarly, if a section 414(v)(7) failure
arises with respect to an elective deferral that is a catch-up
contribution because it exceeds an employer-provided limit, the
contribution is not excluded from being taken into account as a catch-
up contribution for purposes of the ADP test of section 401(k)(3)
pursuant to Sec. 1.401(k)-2(a)(5)(iii) before the correction for the
section 414(v)(7) failure occurs.
Section 1.414(v)-2(c)(3)(iii)(C) of the final regulations provides
that if a section 414(v)(7) failure arises with respect to an elective
deferral that is a catch-up contribution because it exceeds the ADP
limit, the contribution is not excluded from the requirement to
distribute excess contributions as a catch-up contribution pursuant to
Sec. 1.401(k)-2(b)(4)(v) before the correction for the section
414(v)(7) failure occurs. The final regulations align with the existing
section 401(k) regulations for the correction of an excess contribution
by clarifying that, if a plan does not correct excess contributions
within 2-\1/2\ months after the close of the plan year for which the
excess contributions are made (as extended to 6 months under Sec.
1.401(k)-2(b)(5)(iii) in the case of certain applicable employer plans
that include an eligible automatic contribution arrangement within the
meaning of section 414(w)), then the employer will be liable for a 10%
excise tax under section 4979 on the amount of the
[[Page 44544]]
excess contributions that were not distributed timely.
4. Correction Not Required in Certain Circumstances
Commenters requested that Treasury and the IRS address whether
there are circumstances in which a pre-tax elective deferral in excess
of an applicable limit that fails to comply with section 414(v)(7)(A)
would not need to be corrected in order for section 414(v)(1) to apply
and requested that correction not be required in certain circumstances.
Commenters requested that the final regulations include a de minimis
exception under which pre-tax elective deferrals that do not exceed a
specified threshold (for example, $250) would not need to be corrected.
One commenter also requested that the final regulations permit a plan
to rely on a participant's final Form W-2 for a year when determining
whether the participant is subject to the Roth catch-up requirement and
not require correction in the event that the participant's FICA wages
are later adjusted. An example would be a participant whose Form W-2
for the preceding calendar year indicates that FICA wages did not
exceed the Roth catch-up wage threshold, but whose FICA wages are later
adjusted as a result of an employment tax examination, if the adjusted
FICA wages for the participant exceed the Roth catch-up wage threshold.
In response to these comments, Sec. 1.414(v)-2(c)(4) sets forth
two circumstances in which a pre-tax elective deferral in excess of an
applicable limit that fails to comply with section 414(v)(7)(A) would
not need to be corrected in order for the elective deferral to be
treated as a catch-up contribution. First, correction is not required
if the amount of the pre-tax elective deferral that was required to be
a designated Roth contribution does not exceed $250. For purposes of
applying this $250 threshold, earnings and losses on the pre-tax
elective deferral are not taken into account. Second, correction is not
required if the participant became subject to section 414(v)(7)(A)
solely because the participant's FICA wages for the calendar year
preceding the calendar year in which the taxable year begins were not
determined to exceed the Roth catch-up wage threshold until after the
deadline for correction in Sec. 1.414(v)-2(c)(3)(iii).
One commenter requested that the final regulations not require a
correction after a significant passage of time (for example, after the
statute of limitations has run on the participant's tax return for the
taxable year in which the pre-tax elective deferral should have been
made as a designated Roth contribution) or after the amount that would
otherwise be required to be transferred or directly rolled over to the
participant's designated Roth account has been distributed from the
plan. As a general matter, in order to remain qualified, any failure to
meet the qualification requirements must be corrected even if all
applicable statutes of limitations on assessment for the year in which
the failure occurred have closed. The final regulations do not alter
this general principle.
Another commenter requested that the final regulations address the
correction method for a participant who is subject to the Roth catch-up
requirement, is permitted to make pre-tax catch-up contributions, and
subsequently takes a distribution of the participant's entire account
balance before the plan has an opportunity to correct the failure.
Distribution of such an amount would satisfy the qualification
requirements without the need for any additional rules in these final
regulations. However, under Sec. 1.402(c)-2(c)(3)(i) through (iii),
the portion of the distribution attributable to the pre-tax catch-up
contributions would not be an eligible rollover distribution.
D. Other Issues Related to Applicable Employer Plans
1. Safe Harbor Section 401(k) Plans
One commenter requested confirmation that a plan amendment that is
made pursuant to section 603 of the SECURE 2.0 Act would not be a
prohibited mid-year change described in section III.D of Notice 2016-
16, 2016-7 IRB 318.\26\ The Treasury Department and the IRS have
determined that, for purposes of section III.D of Notice 2016-16, a
plan amendment that is made pursuant to section 603 of the SECURE 2.0
Act, or any regulation relating to that provision, is not a prohibited
mid-year change.
---------------------------------------------------------------------------
\26\ Section 1.401(k)-3(e)(1) provides that a plan will fail to
satisfy the requirements of section 401(k)(12) and 401(k)(13) and
Sec. 1.401(k)-3 unless plan provisions that satisfy the safe harbor
plan rules of Sec. 1.401(k)-3 are adopted before the first day of
the plan year and remain in effect for an entire 12-month plan year.
However, the safe harbor plan regulations set out several exceptions
to this requirement and permit additional exceptions to be provided
in guidance of general applicability published in the Internal
Revenue Bulletin. Notice 2016-16 provides guidance regarding mid-
year changes (as defined in section III.A of Notice 2016-16) to a
safe harbor plan. Under that guidance, with the exception of certain
amendments that are subject to regulatory conditions (as described
in section III.B of Notice 2016-16) and certain prohibited mid-year
changes described in section III.D of Notice 2016-16, a mid-year
change is permitted provided that, if it changes a plan's required
safe harbor notice content, the notice and election opportunity
conditions in section III.C of Notice 2016-16 are satisfied.
---------------------------------------------------------------------------
2. Eligible Governmental 457(b) Plans
One commenter requested clarification that correction methods
similar to the in-plan Roth rollover correction method would be
available to an eligible governmental 457(b) plan for a violation of
section 457(c). The commenter noted that, in the proposed regulations,
the deadlines for using the in-plan Roth rollover correction method
would refer to violations of section 401(a)(30), which does not apply
to section 457(b) plans. As described in section III.C.3.b of this
Summary of Comments and Explanation of Revisions (``Deadline to correct
section 414(v)(7) failures''), a single correction deadline applies for
all section 414(v)(7) failures that arise with respect to an elective
deferral that is a catch-up contribution because it exceeds a statutory
limit within the meaning of Sec. 1.414(v)-1(b)(1). A statutory limit
within the meaning of Sec. 1.414(v)-1(b)(1) includes the limit
provided in section 457(b)(2) (without regard to section 457(b)(3)).
Commenters also requested that eligible governmental 457(b) plans
be permitted to include a deemed Roth catch-up election, as permitted
for section 401(k) and section 403(b) plans. These final regulations do
not make any revisions to the regulations relating to eligible
governmental 457(b) plans because those regulations do not currently
provide for the inclusion of a qualified Roth contribution program in
an eligible governmental 457(b) plan.\27\
---------------------------------------------------------------------------
\27\ On June 22, 2016, proposed regulations relating to the
inclusion of a qualified Roth contribution program in an eligible
governmental 457(b) plan were published in the Federal Register (81
FR 40548) and those proposed regulations have not been finalized.
The comments received regarding eligible governmental 457(b) plans
in response to the proposed regulations under section 414(v) will be
taken into account for purposes of future regulations under section
457(b).
---------------------------------------------------------------------------
IV. Applicability Date Issues
The proposed amendments to Sec. Sec. 1.401(k)-1 and 1.403(b)-3
were proposed to apply for taxable years beginning after December 31,
2023. The proposed amendments to Sec. 1.414(v)-1 generally were
proposed to apply with respect to contributions in taxable years that
begin more than 6 months after the date that final regulations amending
Sec. 1.414(v)-1 are issued. However, under the proposed regulations, a
taxpayer would have been permitted to elect to apply the regulatory
provisions relating to sections 109 and 117 of the SECURE 2.0 Act as
early as the statutory applicability dates.
[[Page 44545]]
For a plan that is not maintained pursuant to a collective
bargaining agreement, proposed Sec. 1.414(v)-2 was proposed to apply
with respect to contributions in taxable years beginning more than 6
months after the date that final regulations adding Sec. 1.414(v)-2 to
the Code of Federal Regulations are issued. For a plan that is
maintained pursuant to one or more collective bargaining agreements,
proposed Sec. 1.414(v)-2 was proposed to apply with respect to
contributions in taxable years beginning after the later of the first
taxable year described in the preceding sentence, or the first taxable
year that begins after the date on which the last collective bargaining
agreement related to the plan that is in effect on December 31, 2025,
terminates (determined without regard to any extension of those
agreements). However, under the proposed regulations, a plan would be
permitted to apply Sec. 1.414(v)-2 with respect to contributions in
taxable years beginning after December 31, 2023.
Many commenters requested a later applicability date for the final
regulations and a reasonable, good-faith standard for interpretation of
the statute in advance of the applicability date of the final
regulations. Some of these commenters specifically requested delays for
governmental plans or for plans that are maintained pursuant to one or
more collective bargaining agreements. Other commenters requested an
extension of the administrative transition period provided under Notice
2023-62.
In general, the applicability dates under the final regulations are
based on the applicability dates set forth in the proposed regulations.
Thus, for example, Sec. 1.414(v)-2 is generally applicable for taxable
years beginning after December 31, 2026. The Treasury Department and
the IRS have determined that this regulatory applicability date
provides an adequate period for implementation of the provisions of the
final regulations. The final regulations do not extend or modify the
administrative transition period provided under Notice 2023-62.
However, in response to comments, Sec. 1.414(v)-2(e)(2)(iii) of
the final regulations extends the regulatory applicability date of
Sec. 1.414(v)-2 in the case of a governmental plan within the meaning
of section 414(d), as described in the Applicability Dates section of
this preamble. In addition, the Treasury Department and the IRS
understand that multiemployer plans would benefit from a further
extended applicability date for the Roth catch-up requirement because
of the unique issues faced by those plans. For example, multiemployer
plans do not have access to or control over their contributing
employers' payroll systems and thus must implement complex
administrative coordination procedures to comply with the Roth catch-up
requirement. Therefore, in response to comments, Sec. 1.414(v)-
2(e)(2)(ii) of the final regulations provides that if that plan is a
multiemployer plan as defined in section 414(f), section 414(v)(7) is
deemed satisfied until the first taxable year described in the
Applicability Dates section of this preamble.
Applicability Dates
The amendments to Sec. Sec. 1.401(k)-1 and 1.403(b)-3 apply for
taxable years beginning after December 31, 2023. The amendments to
Sec. 1.414(v)-1 apply with respect to contributions in taxable years
beginning after December 31, 2026. However, the regulations permit a
taxpayer to elect to apply (1) Sec. 1.414(v)-1(c)(2)(ii)(C) and
(c)(2)(iii)(C) (relating to the higher catch-up limit for certain
newly-established SIMPLE plans) with respect to taxable years beginning
after December 31, 2023, and (2) Sec. 1.414(v)-1(c)(2)(i)(B),
(c)(2)(ii)(B), and (c)(2)(iii)(B) (relating to the higher catch-up
limit applicable during the taxable year of attainment of age 60
through 63) with respect to taxable years beginning after December 31,
2024.
For a plan that is not maintained pursuant to a collective
bargaining agreement and not a governmental plan within the meaning of
section 414(d), Sec. 1.414(v)-2 applies with respect to contributions
in taxable years beginning after December 31, 2026. For a plan that is
maintained pursuant to one or more collective bargaining agreements,
Sec. 1.414(v)-2 applies with respect to contributions in taxable years
beginning after the later of the first taxable year described in the
preceding sentence, or the first taxable year that begins after the
date on which the last collective bargaining agreement related to the
plan that is in effect on December 31, 2025, terminates (determined
without regard to any extension of those agreements). Further, if that
plan is a multiemployer plan as defined in section 414(f), section
414(v)(7) is deemed satisfied until the first taxable year beginning
after the date on which the last collective bargaining agreement
related to the plan that is in effect on November 17, 2025 terminates
(determined without regard to any extension to those agreements). In
the case of a governmental plan within the meaning of section 414(d),
Sec. 1.414(v)-2 applies with respect to contributions in taxable years
beginning after the later of the first taxable year beginning after
December 31, 2026, or the first taxable year beginning after the close
of the first regular legislative session of the legislative body with
the authority to amend the plan that begins after December 31, 2025.
However, a plan is permitted to apply Sec. 1.414(v)-2 with respect to
contributions in taxable years beginning after December 31, 2023.
Prior to the applicability date of the final regulations, a
reasonable, good faith interpretation standard applies with respect to
the statutory provisions reflected in the final regulations. For
example, with respect to contributions in taxable years prior to the
applicability date of the final regulations, this standard would be met
if the determination of whether a participant's FICA wages for the
preceding calendar year exceeded the Roth catch-up wage threshold is
made by referencing the FICA taxes imposed by sections 3101(b) and
3111(b) (rather than sections 3101(a) and 3111(a)).
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
These final regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(July 4, 2025) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) requires
that a Federal agency obtain the approval of the Office of Management
and Budget (OMB) before collecting information from the public, whether
such collection of information is mandatory, voluntary, or required to
obtain or retain a benefit. A Federal agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection of information displays a valid
control number.
These regulations contain reporting requirements, contained in
Sec. 1.414(v)-2(c), that relate to corrections of pre-tax elective
deferrals that are catch-up contributions subject to the requirement
under section 414(v)(7)(A) of the Code to be designated Roth
contributions. These collections of information generally will be used
by the IRS for tax compliance purposes and may involve submission of a
Form 1099-R or a Form W-2 to the IRS. The Form 1099-R and its
associated burden are approved by the OMB under 1545-0119. The Form W-2
and its associated burden are
[[Page 44546]]
approved by the OMB under 1545-0029. The regulation does not change the
reporting procedures already established for these forms.
The regulations also contain a recordkeeping requirement that plan
administrators maintain written practices and procedures designed to
result in real-time compliance with certain requirements of section
414(v)(7)(A). These recordkeeping requirements are expected to be usual
and customary business practices that impose no additional burden on
respondents. Therefore, the recordkeeping requirement does not require
OMB approval under 5 CFR 1320.3(b)(2).
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these regulations will not have a significant
economic impact on a substantial number of small entities. These
regulations will affect individuals and businesses, some of which may
be small entities.
Even if a substantial number of small entities will be affected,
the economic impact of these regulations is not expected to be
significant. As discussed in the Paperwork Reduction Act section of
this preamble, these regulations may involve reporting and ordinary
recordkeeping but are not expected to result in an increase in
estimated burden. Any additional recordkeeping or administrative costs
resulting from the changes relating to catch-up contributions that
apply to certain section 401(k) plans, section 403(b) plans, and
eligible governmental 457(b) plans sponsored by small entities are
consistent with existing procedures and are not expected to be
significant. Therefore, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required.
Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on their impact on small businesses and no comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The regulations do not include any Federal mandate that may
result in expenditures by State, local, or Tribal governments, or by
the private sector, in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. The regulations do not have
federalism implications, impose substantial direct compliance costs on
State and local governments, or preempt State law within the meaning of
the Executive order.
VI. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as a major rule, as defined by 5 U.S.C. 804(2).
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings notices, and other guidance
cited in this document are published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="http://www.irs.gov">http://www.irs.gov</a>.
Drafting Information
The principal authors of these regulations are Kara M. Soderstrom,
Christina M. Cerasale, and Jessica S. Weinberger of the Office of the
Associate Chief Counsel (Employee Benefits, Exempt Organizations, and
Employment Taxes (EEE)). However, other personnel from the Treasury
Department and the IRS participated in the development of the proposed
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries, in numerical order, for Sec. Sec. 1.401(k)-1 and 1.414(v)-2
to read in part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.401(k)-1 also issued under 26 U.S.C. 401(m)(9).
* * * * *
Section 1.414(v)-2 also issued under 26 U.S.C. 414(v)(7)(D).
* * * * *
0
Par. 2. Section 1.401(k)-1 is amended by adding paragraphs (f)(5)(iii)
through (v) to read as follows:
Sec. 1.401(k)-1 Certain cash or deferred arrangements.
* * * * *
(f) * * *
(5) * * *
(iii) Deemed Roth catch-up contribution elections. For taxable
years beginning after December 31, 2023, a plan that satisfies the
requirements of paragraph (f)(5)(iv) of this section may provide that
an employee who is subject to the requirement under section 414(v)(7)
to make any catch-up contributions as designated Roth contributions is
deemed to have irrevocably designated any elective deferrals that are
catch-up contributions as designated Roth contributions in accordance
with paragraph (f)(1)(i) of this section. In such a case, the elective
deferrals must be--
(A) Treated by the employer as not excludible from the employee's
gross income, in accordance with paragraph (f)(2) of this section; and
(B) Maintained by the plan in a separate account, in accordance
with paragraph (f)(3) of this section.
(iv) Election for employees subject to section 414(v)(7)(A). A plan
satisfies the requirements of this paragraph (f)(5)(iv) only if under
the plan--
(A) An employee who is described in paragraph (f)(5)(iii) of this
section is provided an effective opportunity (as determined under
paragraph (e)(2)(ii) of this section) to make a new election that is
different than the deemed election described in paragraph (f)(5)(iii)
of this section; and
(B) The deemed election described in paragraph (f)(5)(iii) of this
section ceases to apply to an employee within a reasonable period of
time following the date--
(1) The employee ceases to be subject to the requirement under
section 414(v)(7) to make any catch-up contributions as designated Roth
contributions; or
(2) An amended Form W-2 (Wage and Tax Statement) is filed or
furnished to the employee indicating that the employee is not subject
to the
[[Page 44547]]
requirement under section 414(v)(7) to make any catch-up contributions
as designated Roth contributions.
(v) Separate election plans. Subject to the rules in paragraphs
(f)(5)(iii) and (iv) of this section, a plan utilizing a plan design
that permits a participant to make a separate election to treat certain
elective deferrals as catch-up contributions during each payroll period
(without regard to whether the catch-up contributions are catch-up
contributions under Sec. 1.414(v)-1(c)(3)), including a plan design
described in Sec. 1.414(v)-1(e)(1)(ii)(A), is permitted to provide
that a participant who is subject to the requirement under section
414(v)(7) to make any catch-up contributions as designated Roth
contributions is deemed to have irrevocably designated as Roth
contributions any elective deferrals that are made pursuant to the
separate election.
* * * * *
Sec. 1.403(b)-3 [Amended]
0
Par. 3. Section 1.403(b)-3 is amended in paragraph (c)(1) by:
0
a. Removing the reference ``Sec. 1.401(k)-1(f)(1) and (2)'' and
adding, in its place, the reference ``Sec. 1.401(k)-1(f)(1), (2), (3),
and (5)'';
0
b. Adding the language ``(or is deemed to be so irrevocably designated
in accordance with Sec. 1.401(k)-1(f)(5)(iii))'' immediately following
the language ``otherwise eligible to make under the plan''; and
0
c. Removing the language ``(within the meaning of Sec. 1.401(k)-
1(f)(2))'' and adding, in its place, the language ``(within the meaning
of Sec. 1.401(k)-1(f)(3))''.
0
Par. 4. Section 1.414(v)-1 is amended by:
0
a. In the last sentence of paragraph (a)(1), removing the language
``this section and Sec. 1.402(g)-2'' and adding, in its place, the
language ``this section and Sec. Sec. 1.414(v)-2 and 1.402(g)-2'';
0
b. Adding paragraph (a)(4);
0
c. Revising and republishing paragraph (c)(2);
0
d. Adding paragraph (e)(1)(iii); and
0
e. Revising and republishing paragraphs (e)(2) and (i).
The additions and revisions read as follows:
Sec. 1.414 (v)-1 Catch-up contributions.
(a) * * *
(4) Catch-up contributions must be designated Roth contributions
for certain participants. For provisions relating to the requirement
under section 414(v)(7) that catch-up contributions made by certain
catch-up eligible participants must be designated Roth contributions,
see Sec. 1.414(v)-2.
* * * * *
(c) * * *
(2) Applicable dollar catch-up limit--(i) Plans other than SIMPLE
Plans--(A) In general. Except as provided in paragraph (c)(2)(i)(B) of
this section, the applicable dollar catch-up limit that applies under
an applicable employer plan, other than a SIMPLE 401(k) plan described
in section 401(k)(11) or a SIMPLE IRA plan described in section 408(p),
for a taxable year is $5,000, as adjusted for changes in the cost of
living under paragraph (c)(2)(iii)(A) of this section.
(B) Higher limit applicable during the taxable year of attainment
of age 60 through 63. For a taxable year beginning after 2024, with
respect to a catch-up eligible participant who would attain age 60, 61,
62, or 63 during the taxable year, the applicable dollar catch-up limit
for the taxable year under an applicable employer plan described in
paragraph (c)(2)(i)(A) of this section is $11,250 (which is 150 percent
of the applicable dollar catch-up limit described in paragraph
(c)(2)(i)(A) of this section for a taxable year beginning in 2024), as
adjusted for changes in the cost of living under paragraph
(c)(2)(iii)(B) of this section.
(ii) SIMPLE plans--(A) In general. Except as provided in paragraph
(c)(2)(ii)(B) or (C) of this section, the applicable dollar catch-up
limit that applies under a SIMPLE 401(k) plan described in section
401(k)(11) or a SIMPLE IRA plan described in section 408(p) for a
taxable year is $2,500, as adjusted for changes in the cost of living
under paragraph (c)(2)(iii)(A) of this section.
(B) Higher limit applicable during the taxable year of attainment
of age 60 through 63. For a taxable year beginning after 2024, with
respect to a catch-up eligible participant who would attain age 60, 61,
62, or 63 during the taxable year, the applicable dollar catch-up limit
for the taxable year under an applicable employer plan described in
paragraph (c)(2)(ii)(A) of this section is $5,250 (which is 150 percent
of the applicable dollar catch-up limit under paragraph (c)(2)(ii)(A)
of this section for a taxable year beginning in 2025), as adjusted for
changes in the cost of living under paragraph (c)(2)(iii)(B) of this
section.
(C) Higher limit for certain SIMPLE plans. For a taxable year
beginning after 2023, the applicable dollar catch-up limit under an
applicable employer plan described in paragraph (c)(2)(ii)(A) of this
section that is maintained by an eligible employer meeting the
requirements in section 408(p)(2)(E)(iv) is $3,850 (which is 110
percent of the applicable dollar catch-up limit in effect under
paragraph (c)(2)(ii)(A) of this section for a taxable year beginning in
2024), as adjusted for changes in the cost of living under paragraph
(c)(2)(iii)(C) of this section. The preceding sentence applies with
respect to a taxable year only if the taxable year begins in a calendar
year for which the eligible employer is described in section
408(p)(2)(E)(i)(I) or makes the election described in section
408(p)(2)(E)(i)(II).
(iii) Cost-of-living adjustments--(A) In general. For a taxable
year beginning after 2006, the applicable dollar catch-up limit under
paragraph (c)(2)(i)(A) or (c)(2)(ii)(A) of this section (whichever
applies to the plan) is the initial amount ($5,000 or $2,500,
respectively), increased for changes in the cost of living. The
increase is made at the same time and in the same manner as adjustments
under section 415(d), except that the base period is the calendar
quarter beginning July 1, 2005, and any increase that is not a multiple
of $500 is rounded to the next lower multiple of $500.
(B) Adjustments to higher limit applicable during the taxable year
of attainment of age 60 through 63. For a taxable year beginning after
2025, the applicable dollar catch-up limit under paragraph (c)(2)(i)(B)
or (c)(2)(ii)(B) of this section (whichever applies to the plan) is the
initial amount ($11,250 in the case of paragraph (c)(2)(i)(B) of this
section and $5,250 in the case of paragraph (c)(2)(ii)(B) of this
section), increased for changes in the cost of living. The increase is
made at the same time and in the same manner as adjustments under
section 415(d), except that the base period is the calendar quarter
beginning July 1, 2024, and any increase that is not a multiple of $500
is rounded to the next lower multiple of $500.
(C) Adjustments to higher limit for certain SIMPLE plans. For a
taxable year beginning after 2024, the applicable dollar catch-up limit
under paragraph (c)(2)(ii)(C) of this section is the initial amount
($3,850), increased for changes in the cost of living. The increase is
made at the same time and in the same manner as adjustments under
section 415(d), except that the base period is the calendar quarter
beginning July 1, 2023, and any increase that is not a multiple of $500
is rounded to the next lower multiple of $500.
* * * * *
(e) * * *
(1) * * *
[[Page 44548]]
(iii) Plans providing the statutory maximum catch-up contributions.
An applicable employer plan that provides each catch-up eligible
participant who participates under any applicable employer plan
maintained by the employer with an effective opportunity to make the
maximum amount of catch-up contributions permitted for that participant
under section 414(v) or, if applicable, section 1081.01(d)(7) of the
Puerto Rico Internal Revenue Code of 2011 (13 L.P.R.A. section
30391(d)(7)), as amended, does not fail to satisfy the universal
availability requirement of this paragraph (e) merely because of
differences among catch-up eligible participants as to the dollar
amount of catch-up contributions they are permitted to make. For
example, an applicable employer plan does not fail to satisfy the
universal availability requirement of this paragraph (e) merely because
the plan permits catch-up eligible participants who would attain age
60, 61, 62, or 63 during a taxable year to make catch-up contributions
up to the increased applicable dollar catch-up limit in section
414(v)(2)(E) while only permitting other catch-up eligible participants
to make catch-up contributions up to the applicable dollar catch-up
limit in section 414(v)(2)(B) without regard to section 414(v)(2)(E).
(2) Certain employees disregarded. An applicable employer plan does
not fail to satisfy the universal availability requirement of this
paragraph (e) merely because employees described in section 410(b)(3)
(for example, collectively bargained employees) are not provided the
opportunity to make catch-up contributions (or are provided the
opportunity to make catch-up contributions to a lesser extent than
other employees).
* * * * *
(i) Applicability dates--(1) In general. Except as described in
paragraph (i)(2) of this section or Sec. 1.414(v)-2(e), section 414(v)
applies to contributions in taxable years beginning on or after January
1, 2002. Except as provided in paragraph (i)(2) of this section,
paragraphs (a) through (h) of this section apply to contributions in
taxable years beginning on or after January 1, 2004.
(2) Increases in applicable dollar catch-up limit under section
414(v)(2)--(i) Higher limit during the taxable year of attainment of
age 60 through 63. The amendments to section 414(v)(2) made by section
109 of Division T of the Consolidated Appropriations Act, 2023, Public
Law 117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022
(SECURE 2.0 Act) to provide for a higher applicable dollar catch-up
limit for individuals who attain age 60, 61, 62, or 63 during the
taxable year apply to contributions in taxable years beginning after
December 31, 2024. Paragraphs (c)(2)(i)(B), (c)(2)(ii)(B), and
(c)(2)(iii)(B) of this section apply to contributions in taxable years
beginning after December 31, 2026 (or, at the election of the taxpayer,
taxable years beginning after December 31, 2024). Except as provided in
paragraph (i)(2)(ii) of this section, for taxable years beginning on or
before December 31, 2024, the applicable dollar catch-up limit is
determined under Sec. 1.414(v)-1(c)(2) as it appeared in the April 1,
2025, edition of 26 CFR part 1.
(ii) Higher limit for certain SIMPLE plans. The amendments to
section 414(v)(2) made by section 117 of the SECURE 2.0 Act to provide
for a higher applicable dollar catch-up limit for certain SIMPLE plans
apply to contributions in taxable years beginning after December 31,
2023. Paragraphs (c)(2)(ii)(C) and (c)(2)(iii)(C) of this section apply
to contributions in taxable years beginning after December 31, 2026
(or, at the election of the taxpayer, taxable years beginning after
December 31, 2023). For taxable years beginning on or before December
31, 2023, the applicable dollar catch-up limit for a SIMPLE 401(k) plan
described in section 401(k)(11) or a SIMPLE IRA plan described in
section 408(p) is determined under Sec. 1.414(v)-1(c)(2)(ii) as it
appeared in the April 1, 2025, edition of 26 CFR part 1.
0
Par. 5. Section 1.414(v)-2 is added to read as follows:
Sec. 1.414 (v)-2 Catch-up contributions required to be designated
Roth contributions under section 414(v)(7).
(a) Section 414(v)(7) Roth catch-up contribution requirement--(1)
Organization of this section. Paragraphs (a)(2) through (6) of this
section provide general rules relating to the requirements of section
414(v)(7). Paragraph (b) of this section provides certain rules of
operation for implementing the requirements of section 414(v)(7)
addressed in this paragraph (a). Paragraph (c) of this section provides
rules relating to the treatment of pre-tax catch-up contributions that
were required to be designated Roth contributions under section
414(v)(7). Paragraph (d) of this section provides examples illustrating
the application of the rules of this section. Paragraph (e) of this
section sets forth the statutory and regulatory applicability dates
relating to the section 414(v)(7) Roth catch-up requirement.
(2) Roth catch-up contribution requirement in general. For a
taxable year beginning on or after January 1, 2024, if, for the
calendar year preceding the calendar year in which the taxable year
begins, a catch-up eligible participant in an applicable employer plan
had wages from the employer sponsoring the plan (as determined under
paragraph (b)(4) of this section) that exceeded the Roth catch-up wage
threshold for the calendar year preceding the calendar year in which
the taxable year begins, then Sec. 1.414(v)-1(a)(1) applies only if
that participant's catch-up contributions (as described in Sec.
1.414(v)-1(a)(1)) under the plan are designated Roth contributions (as
defined in section 402A(c)(1)). For this purpose, wages taken into
account are wages as defined in section 3121(a) for purposes of the
taxes imposed by sections 3101(a) and 3111(a) for the year the wages
are required to be taken into account for purposes of chapter 21 of the
Internal Revenue Code. The Roth catch-up wage threshold that applies
for a calendar year is $145,000, as adjusted for changes in the cost of
living under paragraph (a)(3) of this section.
(3) Cost-of-living adjustment. For a calendar year beginning after
December 31, 2024, the Roth catch-up wage threshold in paragraph (a)(2)
of this section is the initial amount ($145,000), increased for changes
in the cost of living. The increase is made at the same time and in the
same manner as adjustments under section 415(d), except that the base
period is the calendar quarter beginning July 1, 2023, and any increase
that is not a multiple of $5,000 is rounded to the next lower multiple
of $5,000.
(4) Certain plans not subject to section 414(v)(7). Paragraph
(a)(2) of this section does not apply to a plan described in section
408(k) or (p).
(5) Availability of designated Roth catch-up contributions. If,
under an applicable employer plan, any catch-up eligible participant
who is subject to the Roth catch-up requirement under paragraph (a)(2)
of this section is permitted to make catch-up contributions as
designated Roth contributions for a plan year, then all catch-up
eligible participants in the plan must be permitted to make catch-up
contributions as designated Roth contributions for the plan year.
(6) Special rule for participants subject to the Puerto Rico Code.
Paragraphs (a)(2) and (5) of this section are treated as satisfied for
a taxable year with respect to a catch-up eligible participant who is
subject to section 1081.01 of the Puerto Rico Internal Revenue Code of
2011 (13 L.P.R.A.
[[Page 44549]]
section 30391), as amended (Puerto Rico Code), if that taxable year
begins before the effective date of an amendment to the Puerto Rico
Code to provide for designated Roth contributions.
(b) Rules of operation--(1) Determination of catch-up contributions
subject to section 414(v)(7) Roth requirement. For a participant who is
subject to the Roth catch-up requirement under paragraph (a)(2) of this
section for a plan year, an elective deferral that, in accordance with
Sec. 1.414(v)-1(c)(3), is treated as a catch-up contribution at the
time of deferral (for example, an elective deferral that is a catch-up
contribution because it exceeds the section 401(a)(30) limit on
elective deferrals) is required to be a designated Roth contribution
only to the extent the participant has not previously made elective
deferrals that are designated Roth contributions during the taxable
year equal to the applicable dollar catch-up limit under Sec.
1.414(v)-1(c)(2). Thus, for example, if a participant who is subject to
the Roth catch-up requirement under paragraph (a)(2) of this section
has already made elective deferrals that are designated Roth
contributions during the taxable year that equal or exceed the
applicable dollar catch-up limit at the time the participant's elective
deferrals for the taxable year reach the section 401(a)(30) limit on
elective deferrals, section 414(v)(7) would not require the
participant's subsequent elective deferrals for the taxable year to be
designated Roth contributions even though they are treated as catch-up
contributions under Sec. 1.414(v)-1(c)(3).
(2) Treatment of plans without qualified Roth contribution
programs. For purposes of Sec. 1.414(v)-1(e)(1)(iii), if an applicable
employer plan does not include a qualified Roth contribution program
(within the meaning of section 402A(b)), then, for a catch-up eligible
participant who is subject to the Roth catch-up requirement under
paragraph (a)(2) of this section, the maximum amount of catch-up
contributions permitted under section 414(v) is $0. Such a plan does
not fail to satisfy the universal availability requirement of Sec.
1.414(v)-1(e) merely because the plan (or another applicable employer
plan maintained by the employer that does not include a qualified Roth
contribution program) does not permit catch-up contributions for
participants who are subject to the Roth catch-up requirement under
paragraph (a)(2) of this section.
(3) Application of nondiscrimination requirements--(i) Plans
without qualified Roth contribution programs. If an applicable employer
plan is described in paragraph (b)(2) of this section, then Sec.
1.414(v)-1(d)(4) does not apply to the plan. As a result, a plan that
has one or more highly compensated employees (as defined in section
414(q)) who are not subject to the Roth catch-up requirement under
paragraph (a)(2) of this section may need to provide that one or more
of those highly compensated employees is not permitted to make catch-up
contributions in order to facilitate satisfaction of Sec. 1.401(a)(4)-
4 with respect to the availability of catch-up contributions. For this
purpose, a plan will be deemed to satisfy Sec. 1.401(a)(4)-4 with
respect to the availability of catch-up contributions if the plan
provides that no catch-up eligible participants who are highly
compensated employees with net earnings from self-employment for the
preceding calendar year from the employer sponsoring the plan above the
Roth catch-up wage threshold are permitted to make catch-up
contributions. A plan is not treated as failing to satisfy the
universal availability requirement of Sec. 1.414(v)-1(e) merely
because the plan precludes one or more highly compensated employees
from making catch-up contributions in accordance with the second
sentence of this paragraph (b)(3)(i) or precludes all catch-up eligible
participants who are highly compensated employees with net earnings
from self-employment for the preceding calendar year from the employer
sponsoring the plan above the Roth catch-up wage threshold from making
catch-up contributions.
(ii) Plans limiting pre-tax catch-up contributions for employees
not subject to section 414(v)(7). The rules of paragraph (b)(3)(i) of
this section also apply to a plan that includes a qualified Roth
contribution program and, in accordance with an optional plan term
providing for aggregation of wages under Sec. 1.414(v)-2(b)(4)(ii),
(b)(4)(iii), or (b)(4)(iv)(A), does not permit pre-tax catch-up
contributions for one or more employees who are not subject to section
414(v)(7).
(4) Determination of employer sponsoring the plan--(i) General
rule. Except as provided in paragraphs (b)(4)(ii) and (iii) of this
section, and subject to paragraphs (b)(4)(iv) and (v) of this section,
for purposes of determining the employer sponsoring the plan with
respect to a catch-up eligible participant, the employer is the
participant's common law employer.
(ii) Optional aggregation for employers using a common paymaster.
If the employer described in paragraph (b)(4)(i) of this section uses a
common paymaster in accordance with section 3121(s), then the plan may
provide that the employee's common law employer is aggregated with one
or more other specified employers using that common paymaster and treat
the aggregated employers as a single employer sponsoring the plan for
purposes of section 414(v)(7) and this section. In such a case, the
employee's wages from the common law employer and from the one or more
other employers that are aggregated with the common law employer are
treated as wages from the employer sponsoring the plan.
(iii) Optional aggregation for other controlled group members. If
the employer described in paragraph (b)(4)(i) of this section is a
member of a group of employers that are treated as a single employer
under the rules of section 414(b), (c), (m), or (o), then the plan may
provide that the employee's common law employer is aggregated with one
or more other specified employers in that group of employers and treat
the aggregated employers as a single employer sponsoring the plan for
purposes of section 414(v)(7) and this section. In such a case, the
employee's wages from the common law employer and from the one or more
other employers that are aggregated with the common law employer are
treated as wages from the employer sponsoring the plan.
(iv) Optional aggregation in the year of an asset purchase. The
following optional provisions apply for a calendar year for which wages
paid to an employee by a predecessor employer are attributed to the
employee's common law employer who is a successor employer in
accordance with Sec. 31.3121(a)(1)-1(b) of this chapter:
(A) Successor employer reports all calendar year wages paid by
predecessor and successor employers on single Form W-2. A plan
sponsored by the successor employer (or an entity aggregated with the
successor employer in accordance with paragraph (b)(4)(ii) or (iii) of
this section) may provide that the wages paid by the predecessor
employer to the employee in the calendar year of the asset purchase and
attributed to the successor employer are treated as wages from the
employer sponsoring the plan for purposes of section 414(v)(7)(A) and
paragraph (a)(2) of this section if such wages are reported on a Form
W-2 (Wage and Tax Statement) filed by the successor employer for the
calendar year in which the asset purchase occurs.
(B) Predecessor and successor employers report respective wages
paid on separate Forms W-2. If the predecessor employer and the
successor
[[Page 44550]]
employer report the wages each pays to the employee during the calendar
year in which the asset purchase occurs on separate Forms W-2, a plan
sponsored by the successor employer (or an entity aggregated with the
successor employer in accordance with paragraph (b)(4)(ii) or (iii) of
this section) may provide that the wages paid by the successor employer
that are treated as wages from the employer sponsoring the plan for
purposes of section 414(v)(7)(A) and paragraph (a)(2) of this section
do not exceed the difference between the Social Security wage base
limit for the calendar year and the wages paid in the calendar year by
the predecessor employer, as reported on the Form W-2 filed by the
successor employer.
(v) Disregarded entities. In the case of an employee who receives
wages from an entity that is disregarded as an entity separate from its
owner in accordance with Sec. 301.7701-2(c)(2)(i) of this chapter
(that is, the entity has not made an election under Sec. 301.7701-
3(b)(1)(ii) of this chapter to be classified as a corporation), the
owner is treated as the employer sponsoring the plan for purposes of
applying this paragraph (b)(4). In such a case, the employee's wages
from the employer sponsoring the plan include the employee's wages from
the disregarded entity and from its owner.
(5) Plans with more than one employer sponsoring the plan. If,
after application of paragraph (b)(4) of this section, an applicable
employer plan has more than one employer sponsoring the plan that are
not treated as one employer under paragraph (b)(4)(ii) or (iii), then--
(i) A catch-up eligible participant's wages for the calendar year
preceding the calendar year in which the taxable year begins from one
employer sponsoring the plan are not aggregated with the wages from
another employer sponsoring the plan for purposes of determining
whether the participant's wages for that preceding calendar year
exceeded the Roth catch-up wage threshold in paragraph (a)(2) of this
section; and
(ii) Even if a catch-up eligible participant's wages for the
calendar year preceding the calendar year in which the taxable year
begins from an employer sponsoring the plan exceeded the Roth catch-up
wage threshold in paragraph (a)(2) of this section, elective deferrals
made from the participant's compensation from another employer
sponsoring the plan that are catch-up contributions are required to be
designated Roth contributions only if the participant's wages for that
preceding calendar year from that other employer also exceeded that
wage threshold.
(6) Coordination with Code section 402A(b)(1) and (c)(1). With
respect to an employee who is subject to the Roth catch-up requirement
set forth in paragraph (a)(2), the rules of this section apply
notwithstanding the requirements regarding elections to make designated
Roth contributions in section 402A(b)(1) and (c)(1).
(c) Treatment of pre-tax catch-up contributions that are required
to be designated Roth contributions--(1) Permitted correction. A pre-
tax elective deferral in excess of an applicable limit described in
Sec. 1.414(v)-1(b)(1) that, in accordance with paragraph (a)(2) of
this section, is a catch-up contribution only if it is a designated
Roth contribution does not cause an applicable employer plan to fail to
satisfy any requirement of the Internal Revenue Code if--
(i) The failure to be a designated Roth contribution is corrected
in accordance with paragraph (c)(2) of this section; or
(ii) No correction is required under the rules of paragraph (c)(4)
of this section.
(2) Correction of section 414(v)(7) failures--(i) In general. For
purposes of this paragraph (c), if an elective deferral that exceeds a
statutory limit, employer-provided limit, or ADP limit (as such terms
are defined in Sec. 1.414(v)-1(b)(1)) fails to be a catch-up
contribution under section 414(v)(1) solely because the elective
deferral is not a designated Roth contribution, then the failure to
satisfy section 414(v)(7) is referred to as a ``section 414(v)(7)
failure.'' In such a case, subject to paragraph (c)(3) of this section,
the section 414(v)(7) failure may be corrected in accordance with this
paragraph (c)(2). A plan may provide for either of the correction
methods described in paragraphs (c)(2)(ii) and (iii) of this section,
but must apply the same correction method for similarly situated
participants, and the selection of which correction method applies may
not be based on the investment returns earned in participants'
accounts. For example, a plan may provide that a section 414(v)(7)
failure is corrected using the correction method described in paragraph
(c)(2)(ii) of this section for all participants for whom the Forms W-2
for that year have not been filed or furnished and is corrected using
the correction method described in paragraph (c)(2)(iii) of this
section for all other participants.
(ii) Permitted correction on Form W-2. A plan may correct a section
414(v)(7) failure by transferring the catch-up contribution (adjusted
for earnings and losses in accordance with Sec. 1.402(g)-1(e)(5)) from
the participant's pre-tax account to the participant's designated Roth
account and reporting the contribution (not adjusted for earnings and
losses) as an elective deferral that is a designated Roth contribution
on the participant's Form W-2 for the year in which the elective
deferral was originally excluded from the participant's gross income.
However, this correction method may be used only if the participant's
Form W-2 for that year has not been filed or furnished to the
participant.
(iii) Permitted correction by in-plan Roth rollover. As an
alternative to the correction method permitted under paragraph
(c)(2)(ii) of this section, a plan may correct a section 414(v)(7)
failure by directly rolling over the elective deferrals that would be
catch-up contributions if they had been designated Roth contributions
(adjusted for earnings and losses in accordance with Sec. 1.402(g)-
1(e)(5)) from the participant's pre-tax account to the participant's
designated Roth account. Under this correction method, the rules of
section 402A(c)(4)(E)(ii) and (iii) will apply and the direct rollover
must be reported as such on Form 1099-R (Distributions from Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc.) for the year of the rollover.
(3) General correction requirements--(i) Practices and procedures
designed to avoid section 414(v)(7) violations--(A) In general. For a
plan to be eligible to use either of the correction methods described
under paragraph (c)(2) of this section with respect to an elective
deferral that is a catch-up contribution because it exceeds a statutory
limit described in Sec. 1.414(v)-1(b)(1)(i), the plan sponsor or plan
administrator must have in place practices and procedures designed to
result in compliance with section 414(v)(7) at the time the elective
deferral is made.
(B) Catch-up contributions relating to section 401(a)(30) limit. As
part of the practices and procedures described in paragraph
(c)(3)(i)(A) of this section, the plan must provide that a participant
who is subject to the Roth catch-up requirement under paragraph (a)(2)
of this section is deemed to have irrevocably designated any elective
deferrals that are catch-up contributions as designated Roth
contributions once the participant's elective deferrals (or, at the
option of the plan, only the participant's pre-tax elective deferrals)
made during the calendar year exceed the section 401(a)(30) limit on
elective deferrals for the taxable year that begins in the calendar
year, provided that the plan provides such an employee an
[[Page 44551]]
effective opportunity to make a new election that is different than the
deemed election. If a plan implements a participant's affirmative pre-
tax catch-up contribution election that is not permitted under
paragraph (a)(2) of this section (taking into account the application
of paragraph (b)(1) of this section), then, except as provided in
paragraph (c)(4) of this section, the section 414(v)(7) failure must be
corrected in accordance with paragraph (c)(2) of this section.
(C) Catch-up contributions for employees with higher section
402(g)(7) limit. In the case of a section 403(b) plan maintained by a
qualified organization described in section 402(g)(7)(B), the plan is
permitted to provide that the automatic treatment of additional
elective deferrals described in section 414(v) as designated Roth
contributions applies to a qualified employee described in section
402(g)(7)(C) once the qualified employee's elective deferrals (or, at
the option of the plan, only the qualified employee's pre-tax elective
deferrals) under the plan for the calendar year exceed the section
401(a)(30) limit on elective deferrals for the taxable year that begins
in the calendar year, increased by the amount described in section
402(g)(7)(A).
(D) Catch-up contributions relating to section 457(b) limit. In the
case of an eligible governmental section 457(b) plan, rules similar to
the rules of paragraph (c)(3)(i)(B) of this section apply with respect
to the section 457(b)(2) limit, except that a plan is permitted to
provide that the automatic treatment of additional elective deferrals
described in section 414(v) as designated Roth contributions applies
after the amount deferred under the plan for the taxable year exceeds
the section 457(b)(3) limit for the employee.
(ii) Reliance on Form W-2. A plan sponsor or plan administrator
does not fail to have in place practices and procedures in accordance
with paragraph (c)(3)(i) of this section merely because a plan
determines the applicability of the section 414(v)(7)(A) Roth catch-up
requirement to a participant on the basis of a timely-filed Form W-2
with respect to the participant.
(iii) Deadlines for corrections of section 414(v)(7) failures under
paragraph (c)(2) of this section--(A) Elective deferrals in excess of a
statutory limit. If the section 414(v)(7) failure arises with respect
to an elective deferral that is a catch-up contribution because it
exceeds a statutory limit (within the meaning of Sec. 1.414(v)-
1(b)(1)), the deadline to complete all corrective steps required under
paragraph (c)(2) of this section in order to avoid a qualification
failure is the last day of the taxable year following the taxable year
for which the elective deferral was made. However, any applicable
earlier correction deadline related to other tax consequences continues
to apply to the excess deferral. For example, in the case of an
elective deferral that is a catch-up contribution because it exceeds
the section 401(a)(30) limit on elective deferrals, if all corrective
steps required under paragraph (c)(2) of this section are not completed
by April 15 following the close of the taxable year for which the
elective deferral was made, then the excess deferral will not be
treated as having been corrected by the deadline in Sec. 1.402(g)-
1(e)(2)(ii). Thus, the tax treatment rules of Sec. 1.402(g)-
1(e)(8)(iii) would apply to the excess deferral.
(B) Elective deferrals in excess of an employer-provided limit. If
the section 414(v)(7) failure arises with respect to an elective
deferral that is a catch-up contribution because it exceeds an
employer-provided limit as described in Sec. 1.414(v)-1(b)(1)(ii), the
deadline to complete the corrective steps required under paragraph
(c)(2) of this section in order to avoid a qualification failure is the
last day of the plan year following the plan year for which the catch-
up contribution was made. However, the contribution is not excluded
from being taken into account as a catch-up contribution for purposes
of the ADP test of section 401(k)(3) pursuant to Sec. 1.401(k)-
2(a)(5)(iii) before the correction occurs.
(C) Elective deferrals in excess of the ADP limit. If the section
414(v)(7) failure arises with respect to an elective deferral that is a
catch-up contribution because it exceeds the ADP limit, the deadline to
complete the corrective steps required under paragraph (c)(2) of this
section in order to avoid a qualification failure is the last day of
the plan year following the plan year for which the catch-up
contribution was made. However, the contribution is not excluded from
the requirement to distribute excess contributions as a catch-up
contribution pursuant to Sec. 1.401(k)-2(b)(4)(v) before the
correction occurs. Thus, the plan must distribute the excess
contribution if the correction for the ADP failure is made before the
correction for the section 414(v)(7) failure is made, but the
distribution need not be made if the section 414(v)(7) failure is
corrected before the excess contribution is distributed. If a plan does
not correct excess contributions within 2-2 months after the close of
the plan year for which the excess contributions are made (as extended
to 6 months under Sec. 1.401(k)-2(b)(5)(iii) in the case of certain
applicable employer plans that include an eligible automatic
contribution arrangement within the meaning of section 414(w)), then
the employer will be liable for a 10% excise tax on the amount of the
excess contributions. See section 4979 and Sec. 54.4979-1 of this
chapter.
(4) Correction not required in certain circumstances--(i) De
minimis section 414(v)(7) failures. A section 414(v)(7) failure with
respect to a participant does not need to be corrected if the amount of
the pre-tax elective deferral that was required to be a designated Roth
contribution does not exceed $250. In such a case, the section
414(v)(7) failure is disregarded, and the elective deferral is treated
as a catch-up contribution.
(ii) Failures attributable to an amended Form W-2. A section
414(v)(7) failure with respect to a participant does not need to be
corrected if the participant became subject to section 414(v)(7)(A)
solely because the participant's wages taken into account under
paragraph (a)(2) of this section for the calendar year preceding the
calendar year in which the taxable year begins were not determined to
exceed the Roth catch-up wage threshold until after the deadline for
correction in paragraph (c)(3)(iii) of this section. In such a case,
the section 414(v)(7) failure is disregarded, and the elective deferral
is treated as a catch-up contribution.
(d) Examples. The following examples illustrate the application of
this section. For purposes of these examples, assume that the
participant's elective deferrals under all plans of the employer do not
exceed the participant's section 415(c)(3) compensation, the
participant's annual additions for a limitation year do not exceed the
section 415(c) limit, the taxable year of the participant is the
calendar year, the plan includes a qualified Roth contribution program,
does not provide for the optional aggregation provision described in
paragraph (b)(4)(iii) of this section, and the plan year is the
calendar year (except as specifically provided). Assume further that
this section applies to contributions in taxable years beginning in
2027, the section 401(a)(30) limit on elective deferrals for 2027 is
$25,000, the applicable dollar catch-up limit for 2027 that is
applicable to each participant in the examples is $8,000, and the Roth
catch-up wage threshold to be applied to 2026 FICA wages for
determining applicability of the Roth catch-up requirement under
section 414(v)(7)(A) for a taxable year beginning in 2027 is $155,000.
[[Page 44552]]
(1) Example 1: Application of Roth catch-up wage threshold--(i)
Facts. In January 2026, Participant A became an employee of an
accounting firm that is structured as a partnership. Through October
2026, A had $156,000 of FICA wages from the accounting firm. In
November 2026, Participant A became a partner in the accounting firm,
and, for 2026, Participant A had a $30,000 distributive share of
partnership income from the accounting firm, all of which was self-
employment income. Participant A is a partner with the accounting firm
for all of 2027.
(ii) Analysis. Although Participant A is a partner with the
accounting firm for the last two months of 2026 and for all of 2027
(and thus has self-employment income rather than FICA wages for that
period), Participant A had more than $155,000 in FICA wages from the
accounting firm for 2026. Thus, Participant A is subject to section
414(v)(7)(A) for 2027, and if Participant A makes elective deferrals in
excess of an applicable limit for 2027 under a plan sponsored by the
accounting firm, those elective deferrals must be designated Roth
contributions.
(2) Example 2: Application of Roth catch-up wage threshold--(i)
Facts. The facts are the same as in paragraph (d)(1) of this section
(Example 1), except that Participant A became a partner of the
accounting firm in May 2026, and had FICA wages from the firm of
$60,000 before becoming partner. In addition, for 2026, Participant A
had a $155,000 distributive share of partnership income from the
accounting firm, all of which was self-employment income.
(ii) Analysis. Although Participant A had total compensation of
$215,000 for the services Participant A performed for the accounting
firm in 2026, only $60,000 of that amount were FICA wages. Because
Participant A did not have more than $155,000 of FICA wages from the
accounting firm for 2026, any elective deferrals in excess of an
applicable limit that Participant A makes for 2027 under a plan
sponsored by the accounting firm are not required to be designated Roth
contributions.
(3) Example 3: Application of section 414(v)(7)(B) to a plan with a
plan year other than the calendar year--(i) Facts. Participant B
participates in an applicable employer plan sponsored by Employer E.
The plan year begins on July 1 and ends on June 30. Participant B had
$160,000 in wages within the meaning of section 3121(a) from Employer E
for calendar year 2026, and is a catch-up eligible participant for
calendar year 2027. For the plan year beginning July 1, 2026, the plan
allows all catch-up eligible participants to make catch-up
contributions and requires that any elective deferrals in excess of an
applicable limit made by catch-up eligible participants who are subject
to the requirements of section 414(v)(7)(A) be designated Roth
contributions.
(ii) Analysis. Because Participant B's FICA wages from Employer E
for calendar year 2026 exceeded $155,000, Participant B is subject to
the requirements of section 414(v)(7)(A) for 2027, and any catch-up
contributions that Participant B makes under the plan during 2027
[…truncated; see source link]Indexed from Federal Register on September 16, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.