If you thought catch-up contributions were settled territory, think again. The IRS has now issued final regulations under SECURE 2.0 that require, as of January 1, 2026, that catch-up contributions for certain higher-earning participants must be made on a Roth (after-tax) basis.
Here’s the bottom line: if a participant aged 50+ had FICA wages above $145,000 in the previous year (subject to indexing), any catch-up contributions they make must be designated Roth contributions. That changes the tax dynamics, the recordkeeping, and the communication burden for sponsors.
Key Implications for Plan Sponsors
1. System & Vendor Readiness
Your payroll, recordkeeping, and elections systems must be able to distinguish between catch-up contributions that must go Roth versus those that can remain pre-tax. That’s a nontrivial update.
2. Document & Plan Design Review
If your plan doesn’t currently allow Roth contributions, catch-up participants subject to the rule will be unable to make catch-up contributions. The regulations provide nondiscrimination relief in such cases — but you need to understand how it works and consider whether to amend your plan.
3. Communication Is Critical
Many participants will never have made Roth contributions in a retirement plan before. You must educate them about the tax tradeoffs — paying taxes now vs. potential tax-free distributions later — and help them recalibrate their deferral strategies.
4. Good-Faith Compliance
Window Even though the statutory requirement begins in 2026, the final regulations give sponsors leeway to rely on a “reasonable, good-faith interpretation” through the end of 2026. But that’s a bridge — not a long-term excuse.
The Rosenbaum Take
This is a move with real teeth. It forces a shift in how retirement saving is taxed for higher earners in their catch-up years. If you’re a plan sponsor who delays preparation, you risk scrambling — or worse, failing compliance.
Start working now with your legal, recordkeeper, and payroll teams. Update your plan documents, run mock elections, and communicate proactively. Because once 2026 hits, the era of pre-tax catch-up for high earners ends — whether your systems are ready or not.
