The SECURE 2.0 Roth Catch-Up Contribution Rules Are Live — Is Your Plan Ready?

There is a significant change in effect for 2026 that every 401(k) plan sponsor needs to understand — and many do not. Under the SECURE 2.0 Act, high-earning employees aged 50 and over are now required to make their catch-up contributions on a Roth (post-tax) basis only. Pre-tax catch-up contributions are no longer permitted for this group.

Most plan sponsors think of this as a plan document issue. It is not — or at least, not only. This is fundamentally a payroll and administration risk. If your payroll system is not configured correctly, catch-up contributions for high earners will be processed as pre-tax in error. The consequence is not just a compliance footnote: it means W-2 corrections, potential refunds to participants, and the administrative burden and cost of unwinding contributions that were never permitted in the first place.

If your plan and payroll setup haven’t been reviewed in light of this change, now is the time.

The SECURE 2.0 Act of 2022 made sweeping changes to retirement plan rules, and 2026 marks the year several of those changes take full effect. Chief among them is the new Roth-only catch-up rule for high earners.

Here is what the rule requires:

• Any participant who earned more than $150,000 in FICA wages from your organization in 2025 is classified as a “high earner” for 2026.
• From 1 January 2026, all catch-up contributions made by high earners must be designated as Roth contributions — that is, made on an after-tax basis.
• Pre-tax catch-up contributions are no longer available to this group, regardless of their individual tax preferences or prior elections.

The IRS published final regulations on this in September 2025. Whilst those regulations do not formally take effect until 2027, employers are required to make a reasonable, good-faith effort to comply from the rule’s effective date — which is now.

The rule applies specifically to participants aged 50 and over who are eligible to make catch-up contributions and who meet the high-earner threshold. Both conditions must be met: the participant must be 50 or older, and they must have earned more than $150,000 in FICA wages from your organization in 2025.

A few important nuances to be aware of:

• The $150,000 threshold is based on FICA wages specifically — not total compensation, not W-2 wages more broadly.
• If a participant had no FICA wages from your organization (for example, a partner with only self-employment income), the Roth-only mandate does not apply to them.
• Employers in a controlled group have the option to aggregate FICA wages across group members for administrative simplicity.

Perhaps most critically: if your plan does not currently permit Roth contributions at all, it cannot allow catch-up contributions for high earners until Roth is added. This is not an edge case — many plans, particularly those designed several years ago, were never set up with Roth features. If yours is one of them, both a plan amendment and payroll reconfiguration are required immediately.

Separate from the Roth mandate, SECURE 2.0 also introduced a higher catch-up contribution limit for participants aged 60 to 63. For 2025 and 2026, this enhanced limit is $11,250 — compared to the standard catch-up limit of $7,500 for those aged 50 and over.

Plans that permit catch-up contributions are not required to offer this enhanced limit, but those that do must apply it correctly. This adds another layer of complexity to payroll processing and recordkeeper coordination that sponsors need to address proactively.

This is where the payroll and administration risk becomes very real. Even if your plan document is in order, a misconfigured payroll system will process catch-up contributions for high earners as pre-tax — and that error compounds with every pay cycle. The checklist below addresses both the plan and the operational side:

• Confirm whether your plan currently allows Roth contributions. If it does not, you will need to amend the plan document before high earners aged 50+ can make any catch-up contributions.
• Identify which participants are high earners for 2026 by reviewing 2025 FICA wage data — specifically those who are also aged 50 or over.
• Update your payroll system to correctly classify and route catch-up contributions for eligible high earners to Roth. Do not assume your payroll provider has made this change automatically.
• Verify that the data feed between your payroll system and your recordkeeper is configured to handle Roth catch-up contributions correctly and is being tested.
• Communicate the change to affected participants clearly and promptly, so they understand how their elections will be treated going forward.
• Document every step of this process. In the event of an audit or DOL inquiry, your ability to demonstrate a prudent, timely response will matter.

If pre-tax catch-up contributions are processed in error for a high earner, the IRS does allow correction — but it requires transferring the contributions and their earnings to Roth and issuing W-2 corrections. Depending on how many pay periods are affected and how many participants are involved, this can become a costly and time-consuming exercise. The administrative burden alone makes prevention far preferable to remediation.

Plan sponsors sometimes treat rule changes like this as an administrative matter — something to be handled by payroll or the recordkeeper. But the fiduciary obligations under ERISA sit with the plan sponsor, and they are not delegated simply by assuming someone else will handle it.

The current litigation environment makes this more pressing than ever. 2025 saw a near-record number of fiduciary class action lawsuits filed under ERISA, and courts are holding sponsors to increasingly high standards of documented decision-making. Non-compliance with the Roth catch-up rules — even if unintentional — could expose your organization to DOL scrutiny, participant claims, and the costs of corrective action.

The strongest defence is a documented record of timely, independent review and prudent action. That means not waiting to be told there is a problem — it means identifying and addressing it proactively.

If you are uncertain whether your plan is set up correctly to handle the new Roth catch-up rules — or if you know it needs updating but aren’t sure where to start — ERISA Advisory Group can help.

Our independent 401(k) Plan Design & Efficiency Review assesses your plan’s current structure against current IRS and DOL requirements, identifies gaps, and provides a clear, actionable roadmap to bring your plan into compliance. We are independent fiduciaries with no products to sell — our only interest is in getting your plan right.

The window to act is now. Reach out to schedule a complimentary discovery call and find out exactly where your plan stands.