Are Your High Earners Ready for Mandatory Roth Catch-Up Contributions?

Beginning January 1, 2026, high earners must designate their catch-up contributions made to a retirement plan as Roth.  While the IRS previously delayed implementation of these mandatory Roth catch-up contributions, no further relief has been granted, and employers and service providers need to be ready to implement the rule for 2026.

This article summarizes the key takeaways of the IRS’s recently published final regulations on the mandatory Roth catch-up contribution rule.  Employers should understand these rules to effectively communicate the changes to their high earners ahead of the new year.

1. What are catch-up contributions?

As background, catch-up contributions apply to employees who (1) have attained age 50; and (2) participate in a 401(k), 403(b), governmental 457(b), or SIMPLE plan that allows catch-up contributions.  Catch-up contributions allow employees who are approaching retirement age to defer additional compensation for contribution to their employer’s retirement plan beyond the standard annual contribution limits. 

2. What is the Roth Rule?

SECURE 2.0 requires participants with 2025 FICA wages exceeding $150,000 to designate their catch-up contributions in 2026 as Roth (the “Roth Rule”).  Roth contributions are elective deferral contributions made to a retirement plan on an after-tax basis, meaning the employee pays income taxes on the compensation before the amounts are contributed to the retirement plan.  Qualified withdrawals of both the original Roth contribution amount plus earnings are able to be taken tax-free at retirement.

3. To what retirement plans does the Roth Rule apply?

The Roth Rule applies to all 401(k), 403(b), and 457(b) plans maintained by governmental employers.  It does not apply to SEP or SIMPLE IRA plans.

4. Can a retirement plan deem a participant’s catch-up contributions as Roth?

Yes. The regulations answered this question in the affirmative, allowing plans to provide that participants who are subject to the Roth Rule are deemed to have elected that their catch-up contributions be designated as Roth.  If a plan decides to make these “deemed elections,” the plan document must be amended to specify the deemed election rule, and participant communications must be clear.  Additionally, the plan must provide a participant with an “effective opportunity” to elect not to make catch-up contributions. 

Alternatively, the regulations allow employers to use an “affirmative election” approach, where participants who are subject to the Roth Rule must actively elect Roth treatment for their catch-up contributions.  If a participant fails to do so, they may not make any catch-up contributions until a Roth election is made.

5. When does the deemed Roth election apply to a participant’s elective deferrals?

A plan document may provide that the deemed election applies either when only the participant’s pre-tax elective deferral contributions reach the 401(a)(30) limit, or when the participant’s combined pre-tax and Roth contributions reach the limit. 

For example, assume the 401(a)(30) limit is $23,000 and the catch-up contribution limit is $7,000.  If an eligible participant subject to the Roth Rule contributes $4,000 in Roth elective deferrals in January, and $26,000 in pre-tax elective deferrals throughout the rest of the year, the plan document could state that $3,000 of the Participant’s pre-tax elective deferrals are instead designated as Roth either (a) once the participant’s total contributions – including the $4,000 in early Roth deferrals – exceed $23,000; or (b) once the participant’s pre-tax contributions – excluding the $4,000 in early Roth deferrals – exceed $23,000. 

The plan document must specify when the deemed election will apply to the participant’s elective deferrals.

6. Can a retirement plan require all catch-up contributions to be Roth?

No. The IRS’s final regulations do not allow plans to require all catch-up contributions (regardless of an employee’s FICA wages) to be designated as Roth.

7. How can a plan determine whether an eligible participant met the FICA wage threshold in the prior year?

The regulations clarify that a plan may determine whether a participant met the FICA wage threshold by using the FICA wages reflected in Box 3 of the participant’s Form W-2 for the prior year.

The proposed regulations also clarify that the Roth Rule does not apply to partners or self-employed individuals, as they do not have any FICA wages.

8. Must the employer prorate the FICA wage threshold for a participant’s partial year of employment?

No.  The Roth Rule only applies if the participant’s wages in the prior year exceeded the FICA threshold.

9. Can a plan aggregate an employee’s wages from related employers for purposes of determining whether they met the FICA wage threshold?

Yes.  The general rule is that wages are not aggregated among related employers – even those in a controlled group – for purposes of determining whether a participant met the FICA wage threshold in the prior year.  However, the regulations clarify that a plan may choose to aggregate the wages of related employers for this purpose.

The plan’s terms may provide for aggregation from the employee’s common law employer and (a) one or more other employers using a common paymaster, or (b) one or more employers that are members of the same controlled group.  If only some of the related employers will be aggregated, the regulations require that the employers who will be aggregated be identified in the plan document or an exhibit thereto.

10. What if our retirement plan doesn’t have a Roth feature?

The regulations clarify that if a plan does not have a Roth feature, participants subject to the Roth Rule may not make any catch-up contributions.  In other words, there is no exception to the Roth Rule for plans without a Roth feature.

Unfortunately, this means that even for plans without a Roth feature, the Roth Rule requires extensive tracking for which participants are subject to the Roth Rule.

11. Does the Roth Rule apply to the special catch-up contributions under 403(b) and 457(b) plans?

No.  If a participant is eligible to make special 403(b) or 457(b) catch-up contributions and is subject to the Roth Rule, then only amounts exceeding the special catch-up limit are subject to the mandate.  In other words, special catch-up contributions may continue to be made as pre-tax elective deferrals; only the age 50 catch-up amounts in excess of the special catch-up limit would be subject to the Roth Rule.

* * *

The Roth Rule will involve significant administrative changes for employers, including for plans that do not permit Roth contributions.  While the Roth Rule applies beginning January 1, 2026, plan amendments are not required until December 31, 2026 (2029 for governmental plans).  Carefully drafted participant communications will be important throughout the 2026 plan year, particularly for participants who are eligible to make catch-up contributions and are subject to the Roth Rule.