Roth Catch-Up Contribution Requirement

Beginning January 1, 2026, SECURE 2.0 introduced an important change to catch-up contributions for certain higher-paid participants. Participants who are age 50 or older and are considered “highly paid individuals” (HPIs) may no longer make pretax catch-up contributions. Instead, all required catch-up contributions for these individuals must be made on a Roth basis.

For this purpose, a highly paid individual is generally a participant whose prior-year FICA wages from the employer exceeded the applicable IRS threshold. For 2026 administration, the applicable 2025 compensation threshold is $150,000.

What Does This Mean for Your Plan?

To ensure your plan is prepared for this new requirement, take the time to review your plan’s operations as follows:

First, confirm that your plan offers Roth deferrals. If your plan permits catch-up contributions but does not currently allow Roth deferrals, the plan document must be amended to add a Roth feature before HPIs can make Roth catch-up contributions.

Next, coordinate with your payroll provider to ensure payroll systems can identify participants whose prior-year FICA wages exceed the applicable compensation threshold and automatically treat any required catch-up contributions as Roth contributions. Many plans and payroll systems accomplish this through a deemed Roth election feature, which automatically treats required catch-up contributions as Roth once a participant becomes subject to the Roth catch-up requirement.

Correcting Errors

If catch-up contributions for an affected participant are mistakenly processed on a pretax basis, corrective action may be required. Depending on the circumstances, corrections may involve payroll adjustments, Form W-2 reporting, or an in-plan Roth conversion. Promptly identifying and correcting these errors can help maintain compliance and minimize administrative complications.

Preparing for Roth Catch-Up Contributions

If you have not already done so, now is the time to identify participants who may be affected, confirm that your payroll and recordkeeping systems are prepared to administer Roth catch-up contributions, verify that your plan document supports the required Roth feature, and communicate with impacted employees about the new rules.

If you have questions about the Roth catch-up requirements or would like assistance preparing your plan for 2026, please contact your Blue Ridge Retirement Plan Consultant.