IRS Finalizes Rule on Roth Catch-Up Contributions
Retirement plan catch-up contributions continue to evolve. The latest change stems from finalized IRS regulations requiring specific catch-up contributions to be made on an after-tax Roth basis.
The regulations, stemming from the SECURE 2.0 Act, affect employees age 50 and older who earn more than $145,000 a year.
As an employer, it’s critical to understand the finalized rule, the impact on plan administration and how to support employees through these changes.
Understanding catch-up contributions and limits
Catch-up contributions allow employees age 50 and older to save additional retirement funds beyond the IRS standard contribution limits. The standard contribution limit in 2025 is $23,500.
Employees age 50 and older can contribute an additional $7,500 to most 401(k), 403(b) and 457 plans in 2025.
The SECURE 2.0 Act also created a “super catch-up” contribution limit for employees ages 60 through 63. These employees can contribute an additional $11,250 in 2025.
The financial services company Mercer projects 2026 catch-up and super catch-up contributions to increase to $8,000 and $12,000, respectively.
What’s changing and when?
Before this new rule, all employees over 50 could make catch-up contributions on a pretax basis. This practice reduced their taxable income while increasing their retirement savings.
Starting in 2026, employees age 50 and older who earned more than $145,000 in the previous year must make their catch-up contributions on a Roth basis. Unlike pretax contributions, Roth contributions are made with after-tax dollars.
There has been confusion about the effective date. Experts recommend complying with the Roth catch-up requirement beginning Jan. 1, 2026.
The Roth catch-up regulations list an effective date of Jan. 1, 2027. However, the National Association of Plan Advisors (NAPA) says the 2027 deadline is when plans must comply with the specific interpretations described in the regulations. According to NAPA, the general obligation to comply begins Jan. 1, 2026.
For next year, the IRS says retirement plans can make a reasonable, good-faith effort to follow the rule.
Later start dates for compliance may apply to certain governmental plans and retirement plans based on collective bargaining agreements.
Additional administrative work
Notably, employees age 50 and older earning less than $145,000 annually can still make pretax catch-up contributions.
In fact, the industry news source BenefitsPRO reports that organizations cannot require all employees to make Roth catch-up contributions. Even though uniform administration would be easier, those making under the salary threshold must be allowed to make pretax contributions.
Plans don’t have to allow Roth catch-up contributions, but it could negatively affect high earners. If a plan doesn’t allow employees making more than $145,000 to make Roth catch-up contributions, those employees cannot make any catch-up contributions.
Most plans will be prepared to manage the Roth aspect. CNN notes that 93% of workplace retirement plans offer a Roth 401(k) option.
The importance of employee communication
Roth contributions may be unfamiliar or unwelcome to some employees. Because they are made with after-tax dollars, they could reduce employees’ take-home pay.
To minimize confusion and frustration, send frequent communications to plan participants. CNN recommends highlighting potential advantages, including:
- Tax-free growth: As with traditional 401(k) contributions, Roth funds grow tax-free within the account.
- Tax-free withdrawals: Roth 401(k) funds can be withdrawn tax-free once an employee reaches age 59½ and the account has been open for at least five years.
- No required minimum distributions: Unlike traditional 401(k) plans, Roth 401(k) accounts are not subject to minimum withdrawal requirements when individuals turn 73.
Understanding Roth 401(k) details and potential advantages can empower employees to adjust their retirement planning strategies.
Employer steps to prepare
While many SECURE 2.0 features are optional, the Roth catch-up rule is mandatory for defined contribution plan sponsors. Although it may seem complex, preparing now can ensure a smooth transition.
The human resources association SHRM highlights the following actions for employers:
- Update payroll and administration systems: Work with your payroll providers and plan recordkeepers to ensure systems can accommodate Roth catch-up contributions for affected employees. If more than the allowable catch-up contribution is placed into a Roth account, the plan administrator can fix this error before the end of the following plan year.
- Maintain pretax contributions for lower earners: Verify that eligible employees who earn less than the $145,000 threshold can continue to make pretax catch-up contributions.
- Review compensation data: The rule says to apply wages from the previous year. Use 2025 Federal Insurance Contributions Act (FICA) wages to determine which employees are subject to the Roth catch-up contribution requirement for the 2026 plan year. Plan administrators can aggregate wages from separate common-law employers to determine whether the Roth catch-up requirement applies.
- Amend plan documents: Update retirement plan documents to address the new rule. Use plain language to ensure clarity for plan participants and administrators.
- Prioritize education: Send frequent, consistent communications to employees. Explain the new regulations, and highlight the potential benefits of Roth contributions.
These steps can minimize compliance challenges and support your employees as the regulations take effect.
Your benefits adviser can help
Navigating regulatory changes can be complex, but you don’t have to do it alone. For more information on Roth catch-up contributions, compliance concerns, and other benefits insights, talk to your insurance broker or benefits adviser.
They can support your retirement plan design, administrative updates and communications to maintain compliance and assist your employees.