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Do You Want to Roth? SECURE 2.0 Offers Roth Opportunities to Retirement Plan Sponsors

January 17, 2023

Raising cash for the Fed, SECURE 2.0 offers two opportunities for plan contributions to be immediately taxed and characterized as designated Roth contributions to the plan. First, effective for tax years beginning after 2023, all employee catch-up contributions to 401(k) plans (and 403(b) and governmental 457(b) plans) for eligible employees whose wages for the preceding calendar year exceed $145,000 (indexed) must be made on a Roth basis. That leads to more taxable compensation for affected employees. Next, with the opportunity beginning now, SECURE 2.0 permits retirement plans to offer eligible employees the opportunity of characterizing fully-vested employer matching and nonelective contributions as designated Roth contributions—much like the existing in-plan Roth rollover opportunity. Pub. L. No. 116-94, Div. T, §§ 603, 604. More taxable compensation and more tax dollars.

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