Roth Catch-up Contributions for High Earners – Next Steps for Plan Sponsors
Secure 2.0 Act (Section 603) Update
As part of the implementation of the SECURE 2.0 Act of 2022, the IRS and Department of the Treasury have released proposed regulations under Section 603, which will require that catch-up contributions for high earners be made on a Roth basis beginning in 2026.
What You Need to Know
• Starting January 1, 2026, participants with FICA wages over $145,000 (indexed) from the plan sponsor in the prior calendar year must make catch-up contributions on a Roth basis.
• This rule applies to catch-up contributions made by eligible participants age 50 and older.
• The $145,000 threshold is indexed annually for inflation.
Your Next Steps
To prepare for compliance in 2026, we recommend the following actions:
1. Begin discussions with your payroll provider as soon as possible.
2. Ensure that your payroll system can:
- Identify employees with FICA wages above $145,000 in 2025.
- Redirect eligible catch-up contributions over the standard limit ($23,500 in 2025) to Roth.
3. Confirm your plan allows both catch-up and Roth contributions. If not, consider plan amendments now.
Special Considerations
• If your plan automatically treats contributions above the 402(g) elective deferral limit as catch-up, participants over the FICA wage threshold will be required to have these amounts contributed as Roth catch-up.
• High earning participants wishing to avoid Roth catch-up contributions will need to lower their deferral elections to stay at or below the annual limit.
• Pre-tax contributions beyond the 402(g) limit from affected participants will likely be rejected or may be recharacterized as Roth catch-up contributions and reported on Form 1099-R depending on your recordkeeper’s contribution processing procedure.
• Notably, some non–highly compensated employees could be impacted due to the wage threshold being lower than that used to determine HCE status, potentially raising nondiscrimination compliance concerns under 401(a)(4) testing.
Why This Matters
Plan sponsors play a key role in ensuring compliance with this new requirement. Payroll providers will be instrumental in identifying affected employees and updating contribution processing rules.
If you have questions about your plan’s readiness or would like to review your plan design, please reach out to Enza Financial, your payroll provider, or your recordkeeper representative.
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