News

Key Takeaways

• Beginning in 2026, employees aged 50 or older who participate in a 401(k), 403(b), or 457(b) plan and earned more than $145,000 from their employer in the previous year must make their catch-up contributions on a Roth (after-tax) basis.
• Employers must update plan documents, payroll systems, and employee communications to stay compliant.
• All plan amendments must be adopted by December 31, 2026.

What Employers Need to Know About the 2026 Roth Catch-Up Change

The IRS has finalized regulations implementing the SECURE 2.0 Act’s catch-up contribution rules, effective in 2026. High-wage earners will be required to make their catch-up contributions on a Roth basis—meaning after-tax instead of pre-tax.

For employers, the change affects payroll processes, plan operations, and employee communication. Understanding the details now helps businesses prepare early and avoid compliance challenges.

What Are the New Catch-Up Contribution Rules Under SECURE 2.0?

Starting in 2026, employees aged 50 or older who earned more than $145,000 in the prior calendar year (2025 for 2026) from the employer sponsoring the plan must make their catch-up contributions as Roth contributions, taxed in the year they are made. The rule applies to 401(k), 403(b), and governmental 457(b) plans. Employees earning less than $145,000, or those not eligible for catch-up contributions, can still choose between pre-tax and Roth contributions.

The change simplifies plan administration while encouraging after-tax savings for higher earners. Employers should ensure their plans can accommodate Roth contributions, allowing affected employees to continue maximizing their retirement benefits.

Who Is Considered a High Wage Earner Under the New Regulations?

A high wage earner is any employee whose FICA wages from the sponsoring employer exceeded $145,000 in the prior year, with the amount adjusted annually for inflation. For employers that share a common paymaster, wages across related entities must be combined.

This definition enables payroll teams to identify affected employees easily and ensures compliance through accurate wage reporting.

When Do the New Rules Take Effect and Which Plans Are Affected?

The Roth catch-up requirement begins January 1, 2026. It applies to qualified retirement plans, including 401(k) plans, 403(b) plans, and governmental 457(b) plans. SIMPLE IRAs, SARSEPs, and specific 403(b) plans are excluded.

What Should Employers Do to Prepare for Compliance?

Employers should begin planning now. Begin by reviewing plan documents to determine if a Roth feature is available. If not, one must be added for high earners to continue making catch-up contributions.

Next, coordinate with payroll providers and plan custodians to ensure systems can identify high earners and apply Roth treatment correctly. Finally, adopt plan amendments by December 31, 2026. Without these updates, high earners will not be able to make catch-up contributions.

How Do These Changes Affect Payroll and Employee Communication?

Payroll systems must track employees’ prior-year FICA wages and automatically designate Roth treatment for those exceeding the threshold. This may require updates to payroll software and closer coordination with plan administrators to ensure seamless integration.

Employers should also clearly communicate these changes to ensure that high earners understand that catch-up contributions will be made after-tax, starting in 2026, which will impact both take-home pay and retirement savings strategies.

Are There Special Rules or Exceptions Employers Should Know?

Some exceptions apply. Collectively bargained employees may have different timelines. Employers should verify which exceptions apply to their plans.

Additionally, the SECURE 2.0 “super” catch-up provision for employees aged 60 to 63 remains available in 2026, but must also follow Roth rules for high-wage earners.

Why Early Planning Matters for Employers

Proactive planning ensures a smooth transition to the Roth-only requirement. Updating systems and documents early will minimize compliance risks and protect employee savings. Working with a CPA or retirement plan advisor helps confirm alignment with final IRS regulations and reduces last-minute stress.

Frequently Asked Questions (FAQ’s)

1. What changes does SECURE 2.0 make to catch-up contributions in 2026?
   In 2026, employees earning more than $145,000 in the previous year (2025 for 2026) must make all catch-up contributions as Roth (after-tax).
2. Who qualifies as a high wage earner under the new IRS rules?
   Any employee whose FICA wages exceeded $145,000 in the prior year, with adjustments for inflation, is considered a high wage earner.
3. How can employers prepare for Roth catch-up compliance?
   Employers should confirm Roth features, update payroll systems, and adopt plan amendments by December 31, 2026.
4. What is the deadline for updating retirement plan documents?
   All plan amendments must be adopted by December 31, 2026, to stay compliant with the new regulations.