Stakeholders from across the U.S. retirement planning industry are calling on the Internal Revenue Service and the Treasury Department to act now to address a major technical drafting error that made its way into the sweeping Secure 2.0 Act legislation.
If uncorrected, the error would ban all tax-advantaged retirement account catch-up contributions after 2024. The problem was first reported by the American Retirement Association's John Sullivan (formerly of ThinkAdvisor), and it involves Section 603 of the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act.
This section of the law is intended to require that catch-up contributions be directed to post-tax Roth accounts in cases where the contributor earns more than $145,000 of FICA-covered wages. But it appears that the complex process of meshing the Secure 2.0 Act's Roth catch-up requirement with the preexisting text of the Internal Revenue Code has resulted in the inadvertent approval of statutory language that will, if not changed, entirely eliminate the opportunity for retirement savers to make catch-up contributions to either traditional or Roth-style accounts.
This outcome would represent a significant departure from the legislation's stated intent, as among its many retirement focused-provisions, the Secure 2.0 Act significantly boosts 401(k) plan retirement account catch-up contribution limits. Specifically, the maximum limits are slated to increase from $7,500 in 2023 to $10,000 for taxpayers aged 60, 61, 62 or 63 for tax years beginning after 2024.
Calls for Quick Correction
Since the ARA first illuminated the problem, multiple retirement industry organizations have taken notice and urged Congress and federal regulators to take the necessary actions, with the latest call coming from the National Association of Government Defined Contribution Administrators (NAGDCA).
On Thursday, the group sent an open letter to legal counsel at the U.S. Department of the Treasury and the Internal Revenue Service, requesting guidance declaring that the regulators are aware of the drafting error and that they will operate with the expectation of a future legislative correction.
In other words, the NAGDCA and other organizations want the Treasury and IRS to declare that they will ignore the drafting error until Congress can correct it.
