Beginning January 1, 2026, the Secure 2.0 Act Roth Catch-up rule requires higher-income employees who make catch-up contributions to do so on an after-tax, or Roth, basis. Previously, employees could choose between pre-tax (Traditional) or after-tax (Roth) catch-up contributions, depending on the plan’s provisions.
Here’s what you need to know about this key change:
- Who is affected? This rule applies to employees aged 50 or older who earned more than $145,000 in FICA wages in the prior calendar year. The $145,000 threshold will be adjusted annually for inflation.
- How does it work? If an employee meets the age and income criteria, any catch-up contributions they make to their 401(k), 403(b), or governmental 457(b) plan must be treated as Roth contributions.
- No Roth? No catch-up: For affected employees, if the employer retirement plan does not offer a Roth contribution feature, they will not be able to make any catch-up contributions at all. This makes it essential for employers to ensure their plans are updated.
What this means for your business?
For many clients, this new provision will require administrative updates. Our team is already preparing to handle these changes, but we need your partnership to ensure a smooth transition.
Here are the next steps you should take:
- Consult your plan provider: Talk to your retirement plan provider to confirm that your plan allows for Roth contributions. If not, discuss the necessary plan amendments to add a Roth feature, if desired. Ask your plan provider if there are any changes to their reporting requirements (i.e. reports or file specifications) for the Roth Catch-up contributions.
- Identify impacted employees: Review your 2025 FICA wage data to identify any employees who may be affected by the $145,000 income threshold in 2026.
- Communicate with your employees: Be sure to inform your employees of this change. Affected employees may want to adjust their contribution strategy for 2026.
Contact Innovative with Retirement Plan Changes
Our team is already preparing for these changes, but we need your help to ensure a smooth transition. Once you have a clear plan from your provider, notify Innovative at ibssupport@ibspayroll.com if there are any changes to your plan, reporting requirements, or file specifications.
For existing plans with Roth deductions, Innovative will configure the system for Roth Catch-up contributions starting in 2026. If you do not wish to allow for the Roth Catch-up contributions starting in 2026, please contact us.
Additional Information
For additional information regarding the Secure 2.0 Act and how it may affect your business, please contact your plan provider or click on the following links:
SECURE 2.0 Act of 2022 | U.S. Department of Labor
Disclaimer: These materials are provided for informational purposes only and are not intended as legal or tax advice. Readers of the IBS Blog should contact their legal or tax professionals to discuss how these matters relate to their individual circumstances.