On September 15, 2025, the U.S. Department of the Treasury and the IRS issued final regulations implementing the Roth catch-up contribution requirement under the SECURE 2.0 Act. These rules will significantly impact how plan sponsors administer catch-up contributions for certain high-income participants starting in 2026.

Key Takeaway for Plan Sponsors

Beginning January 1, 2026, employees who are age 50 or older in 2026 who earned more than $150,000 in FICA wages from the sponsoring employer in the prior year must make their catch-up contributions on a Roth (after-tax) basis. This change requires updates to plan documents, payroll systems, and participant communications.

“Plan administrators must ensure that systems are in place to identify affected participants and properly designate their catch-up contributions as Roth,” the IRS emphasized in its official release.¹

What’s New in the Final Regulations?

The final rule largely aligns with the proposed regulations but includes several clarifications and flexibility that plan sponsors should be aware of:

• Employer Aggregation Flexibility: Employers with multiple payroll entities can aggregate wages across common law employers to determine whether an employee exceeds the $150,000 threshold.
• Deemed Roth Elections: Plans may implement a default Roth treatment for catch-up contributions for affected participants, simplifying administration. Participants must be given the option to opt out.
• Error Correction Relief: If a plan mistakenly accepts a pre-tax catch-up contribution from a high-income participant, the IRS allows for correction without plan disqualification.
• Puerto Rico Plan Guidance: Special provisions apply to dual-qualified plans covering both Puerto Rico and United States participants, offering additional administrative flexibility.
  • Puerto Rico code does not currently allow Roth contributions, but participants who meet the wage requirement are permitted to make catch-up contributions as after-tax contributions.

No Extension of Transition Relief: The administrative transition period still ends on December 31, 2025. Plan sponsors must be fully compliant by January 1, 2026.

Immediate Action Items

To prepare for the upcoming effective date, plan sponsors should:

1. Coordinate with Payroll Providers: Ensure systems can track prior-year FICA wages and apply the Roth requirement accordingly.
   1. FICA (or Federal Insurance Contributions Act) wages include nearly all taxable earned income, such as salary, wages, bonuses, etc. An employee’s FICA wages may be higher than their federal taxable wages (Box 1 on Form W-2) because deductions such as pre-tax 401(k) contributions that reduce taxable wages are still considered to be FICA wages to calculate FICA taxes.
2. Update Plan Documents: Amend plan language to reflect the Roth catch-up requirement and any deemed election provisions.
   1. Plan document provisions that do not currently allow participants to defer Roth contributions are not required to add the provision. Without the option, however, participants who are age 50 and older and meet the wage threshold will not be permitted to elect to defer catch-up contributions.
3. Review Participant Communication Strategies: Clearly explain the change to affected participants, including the implications of Roth vs. pre-tax contributions.
4. Train Internal Teams: HR, payroll and benefits teams should understand the new rules and how to respond to participant questions.
5. Consult Legal and Recordkeeping Partners: Ensure all stakeholders are aligned on implementation and compliance.

Participant Impact

While the rule limits flexibility for high earners, it also presents an opportunity to educate participants on the benefits of Roth contributions, such as tax-free growth and no required minimum distributions (RMDs) during the account holder’s lifetime.

Broader SECURE 2.0 Context

The Roth catch-up rule is part of a broader effort under SECURE 2.0 to modernize retirement savings. Other provisions already released include:

• Higher catch-up limits for ages 60–63
• Student loan matching contributions
• Mandatory automatic enrollment for new plans

The final regulations also provide guidance on these provisions, helping plan sponsors implement them in a coordinated fashion.

Final Thoughts

The IRS’s final regulations provide much-needed clarity, but the compliance burden now shifts to plan sponsors. With the transition period ending in just a few months, proactive planning is essential.

“These final regulations reflect the Treasury Department and IRS’s commitment to helping Americans save for retirement while ensuring compliance with the law,” the IRS stated.¹

Need help preparing your plan for 2026? We can assist with drafting participant notices, updating plan language or creating a compliance checklist. Just let us know what you need.

¹IRS Newsroom – Treasury, IRS issue final regulations on new Roth catch-up rule, other SECURE 2.0 Act provisions

https://www.irs.gov/pub/irs-drop/n-24-63.pdf