SECURE 2.0 has a provision that requires employees making more than $145,000 can only make catch-up contributions in the form of a Roth contribution. This provision is scheduled to start in 2024.
Employees that are at least age 50 are allowed to make an extra contribution (currently $7,500). This could either be a deductible contribution or in the form of a Roth contribution where there is no deduction, but the distributions later on are tax-free.
The new SECURE 2.0 provision now requires this to be a Roth if the employee in the previous year made at least $145,000.
However, the IRS on Friday released Notice 2023-62. The notice defers the requirement for two years to 2026.
The notice does state that this provision will not apply to partners or any other self-employed individual. Section 603 of the SECURE 2.0 Act referred to wages, therefore, self-employed individuals do not have wages. This means that self-employed farmers earning more than $145,000 in the previous year can continue to make deductible catch-up contributions.
The IRS specifically states that FICA wages will be the definition for the provision.
The Notice also indicates that the employee has to have at least $145,000 from one employer. If the employee earned $125,000 from one and $100,000 from another, then the provision does not apply.
The bottom line is that this is good news for most farmers who are age 50 and have a 401(k) plan
