The SECURE Act of 2019 and the follow-up SECURE Act 2.0 of 2022 introduced new provisions for employer-sponsored retirement plans designed to encourage and enhance access to saving. And the changes keep coming. Each year there are updates, adjustments, and new or revised rules. The most recent and notable for 2026 addresses catch-up contributions, a provision that allows older workers to make additional contributions to their retirement plans beyond the usual in order to build more savings for their impending retirement years. For 2025, the 401(k) contribution limit for employee elective deferrals is $23,500. Employees aged 50 and older are allowed an additional $7,500 catch-up contribution, for a total of $31,000. Employees aged 60 to 63 may be eligible for a higher catch-up contribution of $11,250.
While the new catch-up rule doesn’t affect the amount of catch-up contributions allowed, it does change how those contributions are made. Under the rules in effect through the 2025 tax year, workers aged 50 and up were eligible to make their 401(k) catch-up contributions to either a before-tax traditional account or an after-tax Roth account, depending on their preference and what their retirement plan allows. In September of this year, the IRS issued new regulations regarding a provision of SECURE 2.0 requiring workers who earned $150,000 or more in Social Security wages (FICA) the prior year, as reported in Box 3 on their IRS W-2 Wage and Tax Statement, to make their 401(k) catch-up contributions to after-tax Roth accounts starting with the 2026 tax year.
Making catch-up contributions on a before-tax basis allowed workers to receive an upfront tax break by using the amount contributed as a tax deduction, thereby reducing their taxable income. But the change means that workers earning more than the $150,000 threshold will no longer have that option.
While the directive appears rather straightforward, there has been some confusion. The change was initially supposed to go into effect in 2024, but when plan sponsors and plan administrators asked for additional time to make the required changes, “implementation” was moved forward to 2026. At that time the governing federal agencies, the IRS and the Department of Labor, invited comments on the rule. The responses extended so far into 2026 that the agencies delayed “enforcement’ of the new rule until 2027. The confusion is rooted in the distinction between implementation and enforcement. The rule is effective as of 2026, but enforcement is delayed to 2027. The intent is that employers should be implementing the new catch-up rule for 2026, according to the agencies, “to the best of their ability.”
What to do as a business owner
We offer three recommendations as next steps for business owners with employer-sponsored plans.
- Review your current plan to determine who will be impacted, that is, employees who earn more than the FICA threshold of $150,000. (FICA wages are wages subject to payroll tax that go toward funding Social Security and Medicare.) The determination is based on the previous year’s income, that is, employees earning more than $150,000 in FICA wages in 2025 are required to make their catch-up contributions to a Roth plan in 2026. Once it has been determined who is affected by the rule change, you or your Human Resources department should communicate that information to those employees so they can plan accordingly for its impact in 2026
- Talk with your recordkeeper, which focuses on the day-to-day operations, such as tracking participant accounts and transactions, and your third party administrator (TPA), which handles your plan’s overall compliance, design, and administration. If you don’t have a Roth option, you’ll need to amend your plan document to implement one; if you don’t, some of your employees might not be able to do a catch-up contribution after 2026.In addition to compliance, there are operational considerations. Different vendors track catch-ups in different ways. Some recordkeepers and TPAs fund the catch-up contributions first, then allocate to normal contributions. Because there are different ways catch-ups are captured, as part of your fiduciary responsibility as plan sponsor, you need to make sure you know how your recordkeeper and TPA will do it. It is critical to reach out to your recordkeeper and TPA to verify that they are ready to address the new catch-up provision.
- Talk to your payroll vendor: Are they prepared? Are they set up to recognize and stop a contribution that doesn’t comply? Ask your payroll vendor if their software has the logic to address all this change.If you do payroll in-house, does your payroll software accommodate the change? Is it set up to advise someone who has been submitting pre-tax all year that their catch-up dollars will have to be invested in a Roth plan?
Deemed Roth catch-up election
The final regulations for the catch-up contribution rule change keep in place a provision allowing plan sponsors to adopt a “deemed Roth election.” Such an election allows you to convert a pre-tax catch-up election to a Roth contribution for participants subject to the requirement. Such an election can be made in one of three circumstances:
- a participant’s total elective deferrals and Roth contributions made during the calendar year reach the 402(g) limit ($23,500 for 2025), or
- the participant’s pre-tax elective deferrals that year reach the 402(g) limit, or
- for separate election plans, all catch-up elections can be deemed Roth at the start of the calendar year.
Where a deemed Roth election exists, plan participants must be given the option of making a new election different from the deemed election. As a plan sponsor, you should contact your payroll provider, TPA, and recordkeeper to ensure they can support deemed Roth catch-up elections.
We can help.
There are many limitations that apply for highly compensated employees, and it is important to note that this rule for catch-up contributions is not aligned with other high-earner thresholds. The rule for Roth catch-up contributions is entirely separate, unique to itself.
While this change might not impact your firm, we encourage you to start reviewing your plan and asking the right questions now so you and your employees can be prepared for 2026.
These types of ongoing legislative changes require employers to choose their retirement plan partners wisely. If you need assistance, we’re here to help you navigate these and other retirement plan requirements. Contact us with your questions or concerns.
Important Disclosure:
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
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