October 9, 2025
The IRS has issued final regulations implementing the SECURE 2.0 Act’s Roth catch-up requirement, confirming that beginning January 1, 2026, employees age 50 or older who earned more than $145,000 in 2025 in Social Security (Box 3) wages from the employer sponsoring the plan must make catch-up contributions as Roth (after-tax) contributions. This rule applies to 401(k), 403(b), and governmental 457(b) plans, but not to SIMPLE IRAs or non-governmental 457(b) plans.
In practical terms, higher-paid employees may no longer make their additional “catch-up” deferrals on a pre-tax basis. These contributions must be Roth, meaning taxes are paid when contributed rather than when withdrawn at retirement. For example, if an employee earned $160,000 in 2025, any catch-up contributions the employee makes in 2026 must be treated as Roth, even if regular deferrals remain pre-tax. The rule uses W-2 Box 3 Social Security wages from the prior year to determine who is subject to the mandate, and the $145,000 threshold will be indexed in $5,000 increments.
If a retirement plan does not currently permit Roth contributions, affected highly paid participants will lose access to catch-up contributions entirely unless the plan adds a Roth feature. Plan sponsors should confirm whether Roth contributions are allowed, as adding this feature may now be essential to maintain full participation rights for employees age 50 and older.
What’s new in the final regulations: The IRS reaffirmed the 2026 effective date but allowed continued use of a good-faith compliance standard until 2027. The final rules also (1) make wage aggregation across controlled-group employers optional, (2) add flexibility for employers to choose between deemed and affirmative Roth election methods, and (3) introduce de minimis correction relief (no correction is required if an erroneous pre-tax catch-up contribution does not exceed $250). The regulations further clarify how the Roth rule interacts with the special 403(b) and governmental 457(b) catch-up provisions.
Implementation options for 2026: Employers may adopt a deemed election approach, automatically treating catch-up contributions as Roth once the annual deferral limit is reached, or an affirmative election approach, requiring employees to elect Roth treatment before making catch-ups. Either method is permitted but must be coordinated with payroll and recordkeepers to ensure correct coding and reporting.
Next steps for Plan Sponsors:
Why it matters: This is the first time Roth treatment has been mandatory for any type of retirement plan contribution. Plans that misclassify catch-ups or fail to add a Roth feature may face administrative corrections or operational challenges. Employers should take action before year-end 2025 to ensure they are fully prepared for the new requirement.
For assistance updating your plan documents, coordinating implementation, or preparing employee communications, please consult a member of the McGrath North Employee Benefits Practice Group today.
2026 Roth Catch-Up Requirement for High-Earning Employees: What Employers Need to Know
By: Peter Langdon and Amy Thompson SunderlandThe IRS has issued final regulations implementing the SECURE 2.0 Act’s Roth catch-up requirement, confirming that beginning January 1, 2026, employees age 50 or older who earned more than $145,000 in 2025 in Social Security (Box 3) wages from the employer sponsoring the plan must make catch-up contributions as Roth (after-tax) contributions. This rule applies to 401(k), 403(b), and governmental 457(b) plans, but not to SIMPLE IRAs or non-governmental 457(b) plans.
In practical terms, higher-paid employees may no longer make their additional “catch-up” deferrals on a pre-tax basis. These contributions must be Roth, meaning taxes are paid when contributed rather than when withdrawn at retirement. For example, if an employee earned $160,000 in 2025, any catch-up contributions the employee makes in 2026 must be treated as Roth, even if regular deferrals remain pre-tax. The rule uses W-2 Box 3 Social Security wages from the prior year to determine who is subject to the mandate, and the $145,000 threshold will be indexed in $5,000 increments.
If a retirement plan does not currently permit Roth contributions, affected highly paid participants will lose access to catch-up contributions entirely unless the plan adds a Roth feature. Plan sponsors should confirm whether Roth contributions are allowed, as adding this feature may now be essential to maintain full participation rights for employees age 50 and older.
What’s new in the final regulations: The IRS reaffirmed the 2026 effective date but allowed continued use of a good-faith compliance standard until 2027. The final rules also (1) make wage aggregation across controlled-group employers optional, (2) add flexibility for employers to choose between deemed and affirmative Roth election methods, and (3) introduce de minimis correction relief (no correction is required if an erroneous pre-tax catch-up contribution does not exceed $250). The regulations further clarify how the Roth rule interacts with the special 403(b) and governmental 457(b) catch-up provisions.
Implementation options for 2026: Employers may adopt a deemed election approach, automatically treating catch-up contributions as Roth once the annual deferral limit is reached, or an affirmative election approach, requiring employees to elect Roth treatment before making catch-ups. Either method is permitted but must be coordinated with payroll and recordkeepers to ensure correct coding and reporting.
Next steps for Plan Sponsors:
- Confirm whether your plan allows Roth contributions; while not required, adding this feature through a plan amendment is recommended to preserve catch-up contributions for higher-paid employees beginning in 2026.
- Identify 2025 Box 3 wages over $145,000 to flag affected employees.
- Select and document your implementation approach (deemed vs. affirmative).
- Coordinate with recordkeepers, payroll, and vendors to align 2026 systems and reporting.
- Communicate with employees so they understand that future catch-ups will be after-tax and may affect take-home pay.
- Review correction procedures now to apply the new de minimis relief and avoid compliance gaps.
Why it matters: This is the first time Roth treatment has been mandatory for any type of retirement plan contribution. Plans that misclassify catch-ups or fail to add a Roth feature may face administrative corrections or operational challenges. Employers should take action before year-end 2025 to ensure they are fully prepared for the new requirement.
For assistance updating your plan documents, coordinating implementation, or preparing employee communications, please consult a member of the McGrath North Employee Benefits Practice Group today.
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