Beginning January 1, 2026, “high earners” must make catch-up contributions on a Roth (after-tax) basis. The Treasury Department issued final regulations on this SECURE 2.0 change last month. Although the regulations are technically effective in 2027, plans must operate in good-faith compliance in 2026. Plan sponsors that permit catch-up contributions should understand these requirements to ensure smooth implementation in January.
Key Requirements
Participants age 50 or older in 2026 may make up to $8,000 in “catch-up contributions” (contributions above the general 401(k) limit, $24,500 in 2026) if permitted by the plan. Plans may increase the catch-up limit to $11,250 for participants turning 60 to 63 in 2026.
For 2026, employees whose 2025 FICA (W-2 Box 3) wages exceed $150,000 are considered “high earners.” Generally, only wages from a common law employer are considered for this purpose, but employers under common control or using a common paymaster may elect to aggregate wages. Notably, partners with only self-employment income and certain state/local government employees without FICA wages are thus not subject to the Roth-only rule.
Plan Document Requirements
Plans without a Roth feature must add one to continue offering catch-ups to high earners. If the plan allows Roth catch-ups for high-earners, it must make them available to all catch-up eligible participants. It may not require all catch-up contributions to be Roth, however.
Plan sponsors who are under common control or using a common paymaster should consider whether to elect the optional wage aggregation rule. If no election in made, wages are not aggregated.
Plans may adopt a “deemed Roth” rule under which catch-up contributions become Roth once statutory or plan limits are reached, provided high earners are given an “effective opportunity” to opt out—for example, by opting out of catch-up contributions or electing to have any deferrals that would otherwise be deemed Roth distributed to them. The regulations do define “effective opportunity,” but clear advance notice to high earners with a meaningful opportunity to opt out, possibly in an annual notice before the start of the year, would likely suffice.
Correction Options
The regulations provide three methods to correct pre-tax catch-up contributions that should have been Roth. A plan must apply the same method to all similarly situated participants for the year. The Form W-2 and in-plan Roth rollover correction methods are available only to plans that (a) include a deemed Roth election and (b) maintain written practices and procedures for Roth catch-ups.
- Form W-2 Correction. If identified before the Form W-2 for the year of deferral is issued, transfer amounts to the participant’s Roth account and report the contributions as Roth on the Form W-2.
- In-Plan Roth Rollover. Roll over the contributions to the participant’s Roth account and report the rollover on a Form 1099-R for the year of the rollover. A plan is not required to otherwise allow in-plan Roth rollovers to use this method.
- Distribution. Distribute the excess pre-tax contributions and report the distribution on Form 1099-R.
The correction deadline generally extends to the last day of the year following the year of contribution to avoid a plan qualification failure, although earlier correction deadlines (for example, 402(g) or ADP) continue to apply. Earlier correction is therefore recommended.
No correction is required if the incorrect pre-tax amount is $250 or less or if FICA wages are determined to exceed the high earner threshold only after the correction deadline.
Action Items for Plan Sponsors
- Review Plan Design. Plans that do not permit Roth contributions should consider adding them. High earners in plans that to not permit Roth contributions will not be able to make catch-up contributions beginning in 2026.
- Consider Aggregation. Decide whether to adopt the optional wage aggregation rule for identifying high earners (for example, to simplify administration).
- Evaluate a Deemed Roth Provision. A deemed Roth provision is required to use the Form W-2 or in-plan Roth rollover correction methods and reduces the need for affirmative elections, but requires clear communication and strong payroll and recordkeeping systems.
- Communicate with Employees. Inform catch-up eligible participants who are high earners of the new Roth-only rule and their options, including opt-out rights under a deemed Roth provision.
- Adopt Correction Procedures. To apply the W-2 or in-plan Roth rollover correction methods, the plan must (a) include a deemed Roth election (subject to opt out and with appropriate notice), and (b) establish policies and procedures relating to Roth catch-ups. Otherwise, the distribution correction method is required.
- Implementation and Monitoring. Establish procedures to identify high earners using prior-year Form W-2 Box 3 wages and coordinate with services providers to ensure proper Roth designation.
- Plan Amendments. Most plans will require amendments, but the deadline for SECURE 2.0 changes is generally December 31, 2026, even though operational compliance is required sooner.
Please reach out if you have questions or need help with these changes, including preparing Roth catch-up procedures or participant notices.
This alert is necessarily general. Consult with one of our attorneys or another qualified advisor if you have questions about your specific situation.
