The Internal Revenue Service (IRS) has released its final regulations for key provisions within the SECURE 2.0 Act of 2022. These new rules, set to take effect in 2026, will change how high-income employees make catch-up contributions to their workplace retirement plans, such as 401(k)s.
Under the new mandate, individuals earning over a specific threshold will be required to direct their additional retirement savings into post-tax Roth accounts. This change impacts employers who offer these plans and requires them to update their systems and plan documents to ensure compliance.
Key Takeaways
- Effective Date: The new rules for Roth catch-up contributions will be mandatory starting January 1, 2026.
- High-Wage Earner Threshold: The rule applies to employees whose prior-year FICA wages from their employer exceeded $145,000. This threshold will be indexed for inflation in future years.
- Roth Contribution Mandate: High-wage earners must make their catch-up contributions to a Roth account, meaning the contributions are made with after-tax dollars.
- Employer Action Required: Companies must amend their retirement plans by December 31, 2026. Those without a Roth feature will need to add one for high earners to make catch-up contributions.
Understanding the New Roth Catch-Up Mandate
The SECURE 2.0 Act introduced significant changes to the U.S. retirement system, aiming to expand access and encourage savings. One of the most notable provisions involves "catch-up" contributions, which allow workers aged 50 and older to save more for retirement beyond the standard annual limits.
Historically, these extra contributions could be made on a pre-tax or post-tax (Roth) basis, depending on the plan's options. However, the new regulations introduce a requirement known as "Rothification" for a specific group of employees.
Starting in 2026, any participant defined as a high-wage earner who wishes to make catch-up contributions must do so into a Roth account. This means the money is taxed before it goes into the retirement plan, allowing for tax-free withdrawals in retirement.
Contribution Limits for 2025
For the 2025 calendar year, the standard employee contribution limit for plans like 401(k)s is $23,500. The additional catch-up amount for those aged 50 and over is $7,500.
This mandate applies to several common retirement plans, including 401(k), 403(b), and governmental 457(b) plans. It is designed to offset some of the long-term tax revenue loss associated with pre-tax retirement savings.
Plans Without a Roth Option
A critical point for employers is that if their current retirement plan does not include a Roth contribution feature, they must add one to allow high-wage earners to continue making catch-up contributions. According to the final regulations, if a plan does not offer a Roth option, these employees will be unable to make any catch-up contributions at all.
This could affect a plan's nondiscrimination testing, which ensures that retirement plans do not disproportionately benefit highly compensated employees. The regulations provide a special rule to address this potential testing issue.
Defining a High-Wage Earner
The new rules hinge on the specific definition of a "high-wage earner." The SECURE 2.0 Act established this as any employee whose wages from the employer sponsoring the plan exceeded $145,000 in the preceding calendar year.
The wage amount is based on Federal Insurance Contributions Act (FICA) wages, which are used for Social Security and Medicare taxes. This $145,000 figure is not static; it will be adjusted for inflation in subsequent years.
Background on Catch-Up Contributions
Catch-up contributions were created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The goal was to provide older workers with an opportunity to boost their retirement savings as they approached retirement age, helping them make up for years when they may have saved less.
Aggregating Wages for Related Employers
The final regulations provide important clarification for employees who work for multiple related companies under a single corporate umbrella. The IRS has confirmed that wages from related employers can be combined to determine if an employee meets the $145,000 threshold.
This is specifically permitted when the group of related employers uses a common paymaster to handle payroll and tax obligations. This prevents individuals from avoiding the Roth requirement by having their salary split across several related entities.
It is important to note that employees who are not classified as high-wage earners must still be given the opportunity to make their catch-up contributions on a pre-tax basis. A plan cannot mandate that all catch-up contributions from all employees be made to a Roth account.
How Plans Must Handle Contributions
The IRS guidance also details the mechanics of how retirement plans should process these contributions. The rules differ slightly based on how a plan is structured to accept regular and catch-up deferrals.
Some plans use a single election system, where an employee makes one deferral election. Once their contributions reach the annual limit (e.g., $23,500), any additional contributions automatically "spill over" and are classified as catch-up contributions. For high-wage earners, this spillover must be directed to a Roth account.
Other plans use concurrent elections, allowing participants to make separate elections for their regular and catch-up deferrals throughout the year. The regulations permit a plan to automatically treat the separate catch-up election from a high-wage earner as a Roth contribution, even if the employee ultimately does not exceed the standard annual limit by the end of the year.
Special Provisions and Exclusions
The final regulations also address several other specific scenarios and plan types, providing clarity for plan sponsors.
"Super" Catch-Up Contributions
SECURE 2.0 also created an enhanced or "super" catch-up contribution for participants aged 60 through 63. For 2025, this allows certain plan participants to contribute a higher amount.
The IRS confirmed that plans are not required to offer this super catch-up feature. However, if a plan chooses to provide it, it must generally be available to all eligible participants, with exceptions for employees covered by a collective bargaining agreement and certain non-resident aliens.
Rules for SIMPLE IRA Plans
Savings Incentive Match Plans for Employees (SIMPLE) IRAs have their own set of rules. For 2025, the employee contribution limit is $16,500, with a standard catch-up of $3,500 for those 50 and older.
- Super Catch-Up: Individuals aged 60-63 can contribute a super catch-up of $5,250.
- Small Employer Boost: Employers with 25 or fewer employees can increase contribution limits by 10%.
The regulations clarify that a SIMPLE plan eligible for the 10% boost may instead offer the super catch-up limit to employees aged 60-63. However, a plan cannot apply both enhancements to the same participant simultaneously.
Guidance for Puerto Rico and Other Plans
The regulations include special provisions for retirement plans in Puerto Rico, where the tax code currently does not permit Roth contributions. These plans are considered compliant with the SECURE 2.0 mandate until Puerto Rican law is amended to allow for Roth contributions.
Additionally, the final rules confirm that the Roth catch-up mandate does not apply to the special, separate catch-up contribution rules that are unique to certain 403(b) and 457(b) plans.
Next Steps for Employers
With the effective date set for January 1, 2026, employers and plan sponsors have a clear timeline for implementation. There is a transitional period where a "reasonable, good faith interpretation" of the rules will be applied until January 1, 2027.
Employers should begin working with their retirement plan custodians, administrators, and legal counsel to review how these final regulations apply to their specific plans. The deadline to formally adopt the necessary plan amendments is December 31, 2026.
Key actions include updating payroll systems to correctly identify high-wage earners and ensuring that their catch-up contributions are properly directed to Roth accounts. Communication with employees will also be crucial to explain these changes before they take effect.
