Just last month, the Department of the Treasury and the IRS issued final regulations addressing the SECURE 2.0 Act provisions relating to catch-up contributions.
And while we can’t offer legal or compliance advice (we’re your auditor, not your plan administrator or ERISA attorney), we can help you understand what’s coming—and what conversations you might want to start having now with your recordkeeper, payroll provider, and third-party administrator (TPA).
Here’s what you need to know from the September 15 final determination:
Roth catch-up contributions for high earners will now kick in for taxable years beginning after December 31, 2026.
So, if your highly compensated employees still enjoy the ability to make traditional pre-tax catch-up contributions, that window is still closing—but not as quickly as initially proposed. Originally slated for 2024, this change was delayed to give plan sponsors more time to prepare.
The provisions in the final regulations generally apply to contributions in taxable years beginning after December 31, 2026.
Per the provisions, employees earning more than $145,000 in FICA wages in the prior year (adjusted for inflation) must make catch-up contributions as Roth contributions.
What if my retirement plan doesn’t allow Roth contributions?
You’ll need to amend the plan to permit Roth contributions; otherwise, high earners won’t be allowed to make catch-up contributions.
How should plan sponsors prepare?
- Coordinate with your recordkeeper and Third-Party Administrator (TPA) to implement the following.
- Check for Roth availability. If your plan allows catch-up contributions, confirm it has a Roth contribution option for high-earning participants.
- Update your payroll systems. Ensure your payroll provider and systems can automatically route high earners’ catch-up contributions to a Roth account, effective in 2027.
- Clearly communicate changes to affected employees. Inform eligible employees about the mandatory Roth change and its implications for their tax planning.
- Review and update plan document: Work with legal counsel to draft and adopt any necessary plan amendments related to the mandatory Roth catch-up rule.
Pro tip: Roth contributions are made with after-tax dollars, so payroll withholding and reporting will look different. Make sure your internal and external systems communicate effectively with each other.
Note: The final regulations do not extend or modify the administrative transition period provided under Notice 2023-62, which generally ends on December 31, 2025.
Can I implement Roth catch-up contributions sooner?
Yes, you may implement the Roth catch-up requirement for taxable years beginning before 2027 using a reasonable, good-faith interpretation of statutory provisions.
Get ready now for these changes
These changes may not take effect until January 2027, but the preparation starts now.
Consult your plan administrator. Talk to your service providers. Review your plan documents and payroll setup. And most importantly, make sure your team understands how these changes affect participant communication, contribution processing, and documentation.
And remember: while we can’t provide compliance advice, we can help you stay informed and prepared for what’s ahead.
Have questions about how these regulatory changes may impact your next 401(k) plan audit? Let’s talk. Contact us today.
Photo by Brett Jordan
