Roth Catch-Up Contributions – A Practical Deep Dive

Roth Catch-Up Contributions: Key Requirements and Operational Considerations

For plan years beginning on January 1, 2026, SECURE 2.0 fundamentally changes how catch-up contributions must be administered for certain higher-paid participants (HPPs). In particular, plans must apply mandatory Roth treatment to catch-up contributions made by HPPs. These rules introduce new compliance, payroll, and communication challenges that plan sponsors should be addressing well in advance of the effective date.

This article summarizes the final rules and highlights practical considerations for plan sponsors and administrators.

Catch-Up Contribution Limits for 2026

Beginning in 2026, catch-up contribution limits are structured as follows:

• Participants ages 60 through 63 may make catch-up contributions of up to $11,250.
• All other age 50+ eligible participants may make catch-up contributions of up to $8,000.

Plans must be amended to reflect these changes no later than December 31, 2026, and the amended provisions must apply uniformly to all participants covered by the plan.

Mandatory Roth Catch-Up Contributions for HPPs

Effective January 1, 2026, individuals classified as HPPs may make catch-up contributions only on a Roth basis. Pre-tax catch-up contributions are no longer permitted for this group.

Roth elections must be made irrevocably before the applicable payday. Retroactive Roth designations are not permitted. Employers are required to treat Roth catch-up contributions as taxable wages, include them in Form W-2 compensation, and withhold applicable income taxes. 

Definition of a Highly Paid Participant (HPP)

An individual is treated as an HPP if their FICA wages exceeded $150,000 in the prior calendar year (for 2025, for purposes of determining their 2026 status). The $150,000 threshold is indexed for inflation in future years.

Key points from the final regulations include:

• HPP status may be determined using Box 3 of Form W-2 (Social Security wages).
• Partners and self-employed individuals are excluded, as they do not have FICA wages.
• Each common law employer is evaluated separately for HPP purposes, even if the employer is part of a controlled group, an affiliated service group, or its plan participates in a multiple employer plan.

Illustrative Examples

Example 1
Pete is hired in June 2025 with an annual salary of $200,000. His 2025 wages total $100,000, and his 2026 wages total $200,000.

• Pete is not an HPP for 2026, because his 2025 wages did not exceed $150,000.
• Pete will be an HPP for 2027, based on his 2026 wages of $200,000.

Example 2
Acme Pizza and Joe’s Pizzeria are members of a controlled group whose plans are participants of a multiple employer plan. Mary works for both employers in 2025. She earns wages of $165,000 from Acme and wages of $12,000 from Joe’s Pizzeria.

• Mary is an HPP for Acme Pizza for 2026, and her catch-up contributions attributable to Acme Pizza compensation are required to be Roth.
• Mary is not an HPP for Joe’s Pizzeria, and her catch-up contributions attributable to Joe’s Pizzeria compensation are NOT required to be Roth.

When Additional Deferrals Must Be Roth

Once an HPP reaches applicable pre-tax deferral limits, any additional deferrals must be treated as Roth contributions. This applies when deferrals exceed:

• The IRC Sec. 402(g) elective deferral limit ($8,000 for 2026)
• The average deferral percentage (ADP) testing limit
• The IRC Sec. 415 annual additions limit
• Any applicable plan-imposed limit

Is a Roth Feature Required?

No, plans are not required to offer Roth deferrals. If a plan does not include a Roth feature, HPPs are treated as ineligible for catch-up contributions. The IRS has confirmed that this result does not violate the universal availability requirement under IRC Sec. 403(b)(12)(A)(ii) and Treas. Reg. Sec. 1.403(b)-5(b). Roth deferrals remain an optional plan feature and may be eliminated prospectively.

However, if a plan does offer Roth deferrals, the feature must be available to all participants, including non-HPPs.

Correction Options

If a deferral is incorrectly made on a pre-tax basis, but is required to be Roth under IRC Sec. 414(v)(7), the following correction methods are available:

• Correction Before Form W-2 Is Issued
  Transfer the excess amount (adjusted for earnings) from the pre-tax account to the Roth account. Report the excess amount (excluding earnings) as Roth compensation on Form W-2 for the year of contribution.
• In-Plan Roth Rollover (IPRR) – Correction After W-2 is Issued
  Transfer the excess amount (adjusted for earnings) from the pre-tax account to the Roth account. Report the excess amount including earnings as taxable income on Form 1099-R for the year of correction.
• De Minimis Rule
  No correction is required if the excess deferral contribution amount that would otherwise need to be converted to Roth is $250 (excluded earnings) or less. 

Correction Deadlines

Failure to correct excess contributions on a timely basis can result in excise taxes and qualification issues:

• Excess contributions must generally be corrected within 2½ months after the end of the plan year or six months for Eligible Automatic Contribution Arrangements (EACAs) to avoid a 10% excise tax.
• Excess deferrals must be distributed by April 15 of the calendar year following the plan year. If the excess deferrals are not distributed by April 15, they can only be distributed after the participant experiences a distributable event. In that case, the excess amount will be taxed twice, first in the year of deferral and again when it is eventually distributed, resulting in double taxation of the excess.
• To preserve plan qualification, failures under IRC Sec. 414(v)(7) must be corrected by the end of the plan year following the year in which the failure occurred.

Conclusion

The 2026 Roth catch-up rules require coordinated action across plan documents, payroll systems, and recordkeeping platforms. Employers should confirm that payroll can identify HPPs based on prior-year FICA wages, ensure timely Roth elections, and implement appropriate correction procedures. Early planning and clear participant communication will be essential to minimizing operational risk and maintaining compliance.