Catch Up Contributions Must be ROTH for High Earners

Roth Catch-Up Contributions: What Changed in 2026

Starting January 1, 2026, SECURE 2.0 requires certain higher-earning, older employees to make their 401(k) catch-up contributions on a Roth (after-tax) basis. The pre-tax option for these specific contributions is no longer available to those who meet the criteria. This is a real operational change—it affects plan design, payroll, and how participants see their paychecks—so here’s how it actually works.

Quick Background on Catch-Up Contributions

If you’re 50 or older, you can contribute above the standard 401(k) deferral limit. For 2026, the standard limit is $24,500, and the catch-up limit on top of that is $8,000—so a 50+ participant can defer up to $32,500 total. There’s also a “super catch-up” for participants who turn 60, 61, 62, or 63 during 2026: they can contribute up to $11,250 on top of the $24,500, for a total of $35,750. The super catch-up is optional—the plan has to adopt it—but it’s worth knowing about because it’s subject to the same Roth mandate for high earners.

Who’s Affected

The rule applies to participants who meet both of these conditions: they are age 50 or older during 2026, and their FICA wages—that’s Box 3 of the W-2—from the employer sponsoring the plan exceeded $150,000 in 2025.

A few important details here. The default rule is that only FICA wages from the sponsoring employer count—wages from a second job, a spouse’s income, or a prior employer are irrelevant. However, the final regulations do give plans the option to aggregate wages in certain situations, such as controlled-group members, common-paymaster arrangements, and predecessor/successor employers, if that’s easier to administer. And participants with no FICA wages at all—partners, for example, or self-employed individuals who receive only guaranteed payments—are not subject to the Roth catch-up mandate. They can continue making catch-up contributions on a pre-tax or Roth basis, their choice.

What Actually Changes

For participants subject to the Roth catch-up rule, catch-up contributions generally must be treated as designated Roth contributions—although Roth deferrals the participant already made earlier in the year can satisfy all or part of that requirement under the final regulations. Practically speaking, if someone is already electing Roth for their regular deferrals, some or all of their catch-up obligation may already be met. For the majority of affected participants—those making pre-tax deferrals up to the $24,500 limit and then spilling over into catch-up territory—the catch-up portion will need to be Roth.

Roth means after-tax: the money goes in taxed, grows tax-free, and qualified distributions are generally tax-free in retirement. The practical impact is that a participant’s take-home pay will be lower during the contribution period compared to a pre-tax catch-up, because the contribution is no longer reducing their taxable income on the front end.

This also applies to a less obvious situation: when a plan fails nondiscrimination testing (the ADP test), excess contributions from Highly Compensated Employees are sometimes “recharacterized” as catch-up contributions to avoid a refund. Beginning in 2026, if those recharacterized amounts push a high earner above the $24,500 limit, the excess must be treated as Roth. If the plan doesn’t offer Roth, there are correction options—an in-plan Roth rollover (reported on Form 1099-R) or a W-2 correction before the W-2 is filed—but the ordering and timing of those corrections matter, and in some cases the amounts may ultimately need to be refunded.

And that’s the key plan-design constraint—if a plan doesn’t offer a Roth contribution feature at all, high earners simply cannot make catch-up contributions under the new rule. The plan would either need to be amended to add Roth, or those participants lose the ability to make catch-ups entirely.

The “Deemed Roth Election”

Most plans will handle this with what’s called a “deemed Roth election.” The idea is straightforward: once a high earner hits the $24,500 standard deferral limit, the plan automatically designates any additional contributions as Roth—no action required from the participant. This is designed to be the least disruptive approach, and it’s what most TPAs and recordkeepers are implementing.

The final regulations require that the deemed Roth election be set forth in the plan document, and the participant must have an effective opportunity to make a different election. If someone doesn’t want to make Roth catch-up contributions—maybe they’d rather just stop at $24,500—they need to be able to opt out. But the default is that it happens automatically.

Timing and Compliance

This rule has a bit of a layered history. The statute itself (Section 603 of SECURE 2.0) was originally effective for taxable years beginning after December 31, 2023. Industry groups raised concerns about implementation readiness, so IRS Notice 2023-62 created a two-year administrative transition period—meaning plans weren’t penalized for non-compliance through December 31, 2025. The IRS then issued final regulations in September 2025, which formally apply to taxable years beginning after December 31, 2026, but include a “reasonable, good-faith interpretation” standard for 2026.

The practical takeaway: plans need to be operating in compliance starting January 1, 2026, but the good-faith standard gives some breathing room as payroll systems and recordkeepers finish their updates. It’s not a reason to delay preparation—it’s a safety net for implementation hiccups.

Plan amendments reflecting these changes need to be adopted by December 31, 2026 for most plans, with later deadlines for certain collectively bargained and governmental plans.

If Something Goes Wrong

The regulations include correction mechanisms. If a catch-up contribution is mistakenly made on a pre-tax basis when it should have been Roth, two main plan-preserving correction methods are available: a Form W-2 correction method—which transfers the contribution, adjusted for earnings or losses, to the participant’s designated Roth account and reports the contribution on the participant’s Form W-2 for the original year, but only if that Form W-2 has not yet been filed or furnished—or an in-plan Roth rollover, which is reported on Form 1099-R. There is also a de minimis exception: if the amount that should have been Roth does not exceed $250 for the participant, no correction is required.

What Employers Need to Do

The practical checklist is short but important: make sure the plan document permits Roth contributions (amend if it doesn’t), coordinate with payroll to identify which participants meet the high-earner threshold based on prior-year FICA wages, and ensure the recordkeeper is set up to handle the deemed Roth election—which must be reflected in the plan document—or whatever approach the plan is using. Most payroll providers and recordkeepers have been preparing for this for the past two years, so the systems should largely be ready—but it’s worth confirming with each vendor.

And communicate with affected participants. The change in take-home pay will be noticeable for someone used to making pre-tax catch-ups, and a heads-up goes a long way.

Fellow Travelers can help with this process—from reviewing plan documents to coordinating the payroll and recordkeeper setup.