Beginning January 1, 2026, the SECURE 2.0 Act’s Roth catch-up requirement forces higher-earning employees aged 50 and older to make their 401(k), 403(b), and governmental 457(b) catch-up contributions on an after-tax Roth basis instead of pre-tax. The trigger is your prior-year FICA wages from the employer sponsoring the plan: if they exceeded $150,000 in 2025, every dollar of catch-up you contribute in 2026 must be Roth.1GovInfo. 26 USC 414 – Definitions and Special Rules Your regular elective deferrals up to the standard $24,500 annual limit are untouched and can stay pre-tax if you want.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Only the catch-up sitting on top of that limit is forced into Roth treatment.
Who the Rule Applies To
Section 603 of SECURE 2.0 added IRC Section 414(v)(7)(A), which sets a single test: were your FICA wages from the sponsoring employer in the prior calendar year above the indexed threshold? The statute set the base at $145,000 and indexes it in $5,000 increments for taxable years beginning after December 31, 2024.1GovInfo. 26 USC 414 – Definitions and Special Rules For 2026 the threshold sits at $150,000, and the look-back is to your 2025 wages.
If your prior-year wages were at or below the threshold, nothing changes. You keep the pre-tax or Roth choice for catch-up contributions, the same as before.
How “Wages” Are Defined
The threshold uses the FICA wage definition in IRC Section 3121(a), which covers salary, bonuses, commissions, and most other cash compensation but excludes items like employer-paid health premiums and qualified transportation benefits.3Office of the Law Revision Counsel. 26 USC 3121 – Definitions That definition matters for partners and other self-employed individuals: if you received no FICA wages from the plan sponsor because your income comes as self-employment earnings or partnership distributions, the mandatory Roth rule does not apply to you. IRS Notice 2023-62 confirmed this explicitly.4Internal Revenue Service. Notice 2023-62 – Guidance on Section 603 of the SECURE 2.0 Act
Wages Are Not Combined Across Jobs
Each employer’s plan runs its own test on its own wages. Notice 2023-62 gave a direct example: an employee earning $100,000 at one job and $125,000 at another is not subject to mandatory Roth catch-up at either plan, even though total wages come to $225,000.4Internal Revenue Service. Notice 2023-62 – Guidance on Section 603 of the SECURE 2.0 Act Within a controlled group, aggregation is permitted under the final regulations but not required.
For a new hire who worked elsewhere during the prior year, only wages actually received from the current sponsoring employer count. Somebody who earned $200,000 at a previous job but $50,000 from the current employer last year is not subject to the requirement in the new plan.4Internal Revenue Service. Notice 2023-62 – Guidance on Section 603 of the SECURE 2.0 Act
Which Plans Are Covered
The requirement reaches three plan types: Section 401(k) plans, Section 403(b) plans used by public schools, hospitals, and certain nonprofits, and governmental Section 457(b) plans. Non-governmental 457(b) plans, SEP IRAs, and SIMPLE IRAs are excluded from the mandate.1GovInfo. 26 USC 414 – Definitions and Special Rules Plan size does not matter. A small-business 401(k) faces the same rule as a plan covering tens of thousands of employees.
The Trap for Plans That Do Not Offer Roth
Section 414(v)(7)(B) creates a consequence that catches sponsors off guard. If even a single participant in the plan is subject to mandatory Roth catch-up, the plan must offer a Roth contribution feature to every catch-up eligible participant. If it does not, no one in the plan can make catch-up contributions at all.1GovInfo. 26 USC 414 – Definitions and Special Rules A plan that never offered Roth and has one participant over the threshold has two options: add a Roth feature or shut off catch-ups for everyone.
The Higher Limit for Ages 60 Through 63
SECURE 2.0 also created an enhanced catch-up limit for participants who turn 60, 61, 62, or 63 during the year. For 2026 that limit is $11,250, compared with the standard $8,000.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The Roth requirement applies to the full amount. A 61-year-old who earned over $150,000 in 2025 must make the entire $11,250 catch-up as Roth. At a 32% marginal federal rate, the after-tax cost of fully funding that enhanced catch-up runs roughly $3,600 higher than making the same contribution pre-tax.
What It Does to Your Paycheck
The dollar amount going into the plan stays the same. What changes is that the money now comes out of after-tax pay. Your employer withholds income tax on the catch-up amount before depositing it into your Roth account, so your take-home shrinks compared with pre-tax treatment.
A rough illustration. If you contribute $8,000 in catch-up during 2026 and sit at a 24% marginal federal rate, pre-tax treatment would have dropped your taxable income by $8,000 and saved you about $1,920 on the current-year tax bill. Under mandatory Roth, your taxable income does not drop, and your take-home falls by roughly that same $1,920 compared with the pre-tax scenario. In exchange, the contribution and all its growth come out tax-free in retirement.
Whether the trade helps or hurts depends on where your tax rate lands in retirement versus today. Lower rate later means the forced Roth treatment costs more than it saves; the same or a higher rate later flips the math. Having a mix of pre-tax and Roth assets gives you the most flexibility to manage future tax bills, and Section 603 pushes higher earners toward that mix whether or not they were planning to build it.
Effective Date and the 2025 Final Regulations
Section 603 was originally slated to take effect January 1, 2024. Payroll systems and recordkeepers could not meet that date, and a drafting problem in the statute muddied things further, so the IRS issued Notice 2023-62 in August 2023 granting a two-year administrative transition period.5Internal Revenue Service. Internal Revenue Bulletin 2023-37 Catch-up contributions for 2024 and 2025 could continue on a pre-tax basis regardless of income.4Internal Revenue Service. Notice 2023-62 – Guidance on Section 603 of the SECURE 2.0 Act
Treasury and the IRS issued final regulations on September 16, 2025.6Federal Register. Catch-Up Contributions The applicability date is January 1, 2027, which lets plans use a good-faith interpretation during the 2026 plan year as long as they are in full compliance by 2027. Plan documents must be formally amended to incorporate the Roth catch-up provisions by December 31, 2026.
What Plan Sponsors Have to Build
Compliance is not a document exercise. It reaches into compensation tracking, payroll, recordkeeping, tax reporting, and participant communications.
Identifying Affected Participants
Before each plan year, the sponsor has to produce a list of every catch-up eligible participant whose prior-year FICA wages from that employer exceeded the indexed threshold. The list drives everything downstream. Payroll uses it to set withholding, and the recordkeeper uses it to code contributions correctly. An error at this step produces wrong tax treatment, wrong W-2s, and potential plan qualification exposure.
Splitting Contributions Within a Paycheck
For an affected participant, regular deferrals flow in under the participant’s chosen tax treatment up to the $24,500 standard limit for 2026. Everything above that must be Roth. The switch happens at the contribution level, not the pay period level: in the pay period where the participant crosses the standard limit, that check has to be split, with part keeping its original treatment and the overflow going in as Roth. Systems that process contributions only in whole-paycheck increments need reconfiguration, and the recordkeeper and payroll provider need to coordinate in real time.
W-2 Reporting
Roth deferrals to a 401(k) are reported in Box 12 with code AA; Roth deferrals to a 403(b) use code BB. Because these are after-tax contributions, the amounts stay in the taxable wages reported in Boxes 1, 3, and 5, rather than reducing those figures the way pre-tax deferrals do. Payroll software has to handle that distinction on a participant-by-participant basis.
Fixing Mistakes
The IRS has not yet established a correction method built specifically for a mistaken pre-tax catch-up by a participant who should have been in Roth. The closest existing analog is the correction used when pre-tax deferrals are deposited for a participant who elected Roth, which involves moving the contributions to the Roth account and adjusting the participant’s taxable income. That can mean an amended return for the participant and a corrected W-2 from the employer. Getting the identification and withholding right up front is far cheaper than unwinding it later.
Telling Participants What Changed
Enrollment materials and annual notices should spell out that affected participants will see a smaller paycheck because catch-up contributions no longer reduce taxable income, and that the change touches only the catch-up portion, not regular deferrals. Clear notices cut down on both confusion and the volume of correction requests that land back on the administrator’s desk.