One of the major changes to retirement plans under the SECURE 2.0 Act of 2022 is that catch-up contributions for high earners must now be designated as Roth. While the IRS previously delayed implementation of this rule, no additional relief has been granted. Employers and service providers must be ready to implement the rule starting January 1, 2026.

On September 16, 2025, the IRS issued final regulations on mandatory Roth catch-up contributions. Here’s a summary of the key points to help employers prepare:

1. What are catch-up contributions?

Catch-up contributions allow employees who are age 50 or older to contribute additional amounts to their retirement plan beyond the standard annual limits ($8,500 for 2026). This applies to participants in 401(k), 403(b), governmental 457(b), or SIMPLE plans that allow catch-up contributions, helping those approaching retirement save more.

2. What is the mandatory Roth catch-up?

Under SECURE 2.0, participants with FICA wages exceeding $150,000  (indexed) in the prior year must designate their catch-up contributions as Roth starting 2026.

• Roth contributions are made on an after-tax basis.
• Qualified withdrawals of both contributions and earnings are tax-free at retirement.

3. Which plans are affected?

The mandatory Roth catch-up applies to 401(k), 403(b), and governmental 457(b) plans. It does not apply to SEP or SIMPLE IRA plans.

4. Can plans deem catch-up contributions as Roth?

Yes. Plans can:

• Deemed election: Automatically treat catch-up contributions as Roth for participants subject to the mandatory Roth catch-up. The plan document must specify this rule, and participants must have the opportunity to opt out of catch-up contributions.
• Affirmative election: Require participants to actively elect Roth treatment. If no election is made, the participant cannot make catch-up contributions until they do.

Clear participant communication is essential under both approaches.

5. When does the deemed Roth election apply?

Plans may specify that the deemed election applies either:

1. When pre-tax elective deferrals reach the 401(a)(30) limit, or
2. When combined pre-tax and Roth contributions reach the limit.

Example:

• 401(a)(30) limit: $24,500
• Catch-up limit: $8,500
• Participant contributes $4,000 Roth early in the year, then $29,000 pre-tax later.
  The plan document must clarify whether $4,500 of pre-tax contributions is automatically designated as Roth based on total contributions or pre-tax contributions only.

6. Can all catch-up contributions be required as Roth?

No. Plans cannot require all catch-up contributions to be Roth—only those from participants exceeding the FICA threshold.

7. How is the FICA wage threshold determined?

Plans may use Box 3 of the participant’s Form W-2 from the prior year.

• Partners and self-employed individuals are not subject to the mandatory Roth catch-up, as they have no FICA wages.

8. Is the FICA threshold prorated for partial-year employees?

No. Only participants whose prior-year wages exceed $150,000 are subject to the mandatory Roth catch-up.

9. Can wages from related employers be aggregated?

Yes, if the plan allows.

• Normally, wages from related employers (even within a controlled group) are not aggregated.
• Plans may choose to aggregate wages from related employers or a common paymaster.
• If only certain employers are included, the plan document must clearly identify them.

10. What if the plan doesn’t have a Roth feature?

Participants subject to the mandatory Roth catch-up cannot make catch-up contributions. There is no exception, even if the plan does not currently allow Roth contributions.

11. What should employers/plan sponsors should do next?

Employers should begin preparing now for the mandatory Roth catch-up contributions effective January 1, 2026. Key steps include reviewing plan documents to ensure Roth contributions are allowed and updating provisions for deemed or affirmative elections, coordinating with payroll providers and recordkeepers to track FICA wages and correctly designate catch-up contributions as Roth, and communicating clearly with affected employees about the rule, contribution limits, and tax implications. Employers should also test payroll and recordkeeping processes, document procedures, and work closely with advisors and service providers to avoid operational errors and ensure smooth implementation.

How NESA Supports Clients and Partners

At NESA, we realize the mandatory Roth catch-up provision introduces significant administrative and compliance complexities for 2026. NESA works closely with clients, advisors, payroll providers, and recordkeepers to ensure this provision is implemented correctly, helping plans avoid operational hiccups. From reviewing plan documents and setting up Roth catch-up tracking to preparing participant communications and coordinating with service providers, NESA provides hands-on support to make the transition smooth and ensure participants subject to the provision can contribute as intended.