Correcting Erroneous Catch-Up Contributions Post-SECURE 2.0

The Roth mandate for catch-up contributions of highly-compensated employees is now live--and while many plans have made significant changes to implement the new rule, errors are still possible. When a high-income employee's catch-up contribution is erroneously treated as a traditional contribution instead of a Roth, the IRS has offered options. When an error is caught before the participant's W-2 is issued, the improper contribution (with earnings/losses) can be transferred into the participant's Roth account and reported on the W-2 as a Roth contribution. When an error is caught after the W-2 has been issued, the error can be fixed by executing an in-plan Roth rollover (i.e., moving the funds from the traditional account to the Roth). A 1099-R must be issued for the rollover amount to correct the tax treatment (via the plans recordkeeper, typically). If the employer elected not to offer a Roth (the option is not mandatory), they will be required to distribute the erroneous catch-up as an excess contribution (thereby preventing the high-income employee from making a catch-up contribution at all). For more information on the rules governing catch-up contributions, visit Tax Facts Online. Read More: Link to Q3761.