Beginning in 2026, changes under the SECURE 2.0 Act and final IRS regulations (T.D. 10033) introduce a significant update to how certain retirement plan catch-up contributions must be handled. For some employees, catch-up contributions will no longer be allowed on a pre-tax basis and must instead be made as Roth contributions.

This change has important implications for employers, payroll teams, and retirement plan administration. Below is a practical overview of who is affected, how the rules work, and what organizations should be doing now to prepare.Who Is Affected by the Roth Catch-Up Requirement?

The new rule applies to catch-up eligible participants who meet both of the following criteria:

• Age 50 or older by the end of the taxable year, and

• Eligible to make elective deferrals under a:

  • 401(k) plan

  • 403(b) plan

  • Governmental 457(b) plan

In addition, the employee must be considered a high-wage employee under the rule.

High-Wage Employees

An employee is subject to the Roth catch-up requirement if their prior-year wages from the employer sponsoring the plan exceed the applicable wage threshold. Wages are defined for this purpose as Social Security (FICA) wages under IRC §3121(a).

What Is the Wage Threshold for 2026?

For 2026, the Roth catch-up wage threshold is $155,000 in prior-year FICA wages from the employer sponsoring the plan.

• The threshold was originally set at $145,000 for 2024

• It is indexed for inflation in $5,000 increments

If an employee’s prior-year wages exceed this amount, the Roth catch-up rules apply.

What Is Required Under the New Rule?

Mandatory Roth Catch-Up Contributions

For employees above the wage threshold:

• All catch-up contributions must be made as Roth contributions

• Contributions are made after tax and included in gross income

• Funds are held in a designated Roth account

No Pre-Tax Catch-Up Allowed

High-wage employees cannot make pre-tax catch-up contributions once subject to the rule.

Employees Below the Threshold

Employees who do not exceed the wage threshold may continue to make catch-up contributions as either:

• Pre-tax, or

• Roth depending on plan design.

How Are Wages Determined?

Understanding how wages are measured is critical for compliance.

• Wages used: Social Security (FICA) wages reported in Box 3 of Form W-2

• Not used: Medicare wages (Box 5)

Employer Sponsoring the Plan

Generally, only wages paid by the employee’s common law employer sponsoring the plan are counted.

Special Situations

Certain scenarios require additional attention:

• Disregarded entities: Wages paid by both the entity and its owner are combined

• Predecessor or successor employers: Special rules allow reliance on Form W-2 reporting in certain asset purchase or transition situations

• Controlled groups or common paymasters: Aggregation applies only if the plan document specifically provides for it

Plan Requirements and Payroll Operations

Plans Must Offer a Roth Feature

If a plan does not offer Roth contributions:

• Employees subject to the Roth catch-up rule cannot make catch-up contributions

• Other employees may still be allowed to make catch-up contributions

Universal Availability Rule

If Roth catch-up contributions are permitted for any affected employee, all catch-up eligible participants must be allowed to make Roth catch-up contributions, even if they are below the wage threshold.

Payroll System Impacts

Payroll teams will need to:

• Identify employees who exceeded the prior-year wage threshold

• Ensure catch-up contributions for those employees are processed as Roth only

• Prevent pre-tax catch-up contributions for affected individuals

Plans may also adopt a deemed Roth election, where catch-up contributions are automatically treated as Roth, provided employees have a meaningful opportunity to opt out of making catch-up contributions.

Correcting Errors

If a pre-tax catch-up contribution is made in error for an employee subject to the Roth requirement, corrections may include:

• Transferring the contribution (plus earnings or losses) to the Roth account and reporting it as Roth on Form W-2 (if not yet issued), or

• Completing an in-plan Roth rollover and reporting the transaction on Form 1099-R

A de minimis exception applies if the incorrect amount is $250 or less, in which case no correction is required.

Exceptions and Special Rules

• SIMPLE IRAs and SEPs: Not subject to the Roth catch-up requirement

• Governmental and collectively bargained plans: Subject to delayed effective dates

• De minimis errors: Errors of $250 or less do not require correction

Effective Dates

• The statutory rule applies to taxable years beginning after December 31, 2023

• Final regulations generally apply beginning after December 31, 2026

• For 2024–2026, employers may rely on a reasonable, good-faith interpretation of the law

Key Takeaways for Payroll and CAS Teams

• Identify employees annually whose prior-year FICA wages exceed the threshold

• Update payroll systems to enforce Roth-only catch-up contributions where required

• Coordinate with plan administrators to ensure plan documents align with operations

• Establish correction procedures for errors

• Monitor future inflation adjustments to the wage threshold

How HCJ Can Help

These changes introduce new operational complexity for payroll, HR, and retirement plan administration. Our team works closely with employers, plan sponsors, and CAS teams to ensure compliance, system readiness, and smooth implementation.

If you have questions about how these rules apply to your organization — especially in complex situations such as mergers, multiple employers, or unique payroll arrangements — we’re here to help.