The SECURE 2.0 Act of 2022 was designed to enhance retirement savings for Americans by making it easier and more affordable to save. Each year, since the signing of this act, we have seen plan rules change, and 2026 will mark another key change in how catch-up contributions will be handled for high wage earners.
The current rules state that if you are aged 50 or over, at any point during the calendar year, you can contribute an additional $7,500 on top of the regular contribution limit. The latter is also known as a catch-up contribution. For 2025, the regular contribution limit to a 401(k) plan is $23,500, so those aged 50 and older can contribute a limit of $31,000. The SECURE 2.0 Act implemented what many would refer to as a ‘super catch-up contribution,’ where those aged 60 to 63, as of January 1, 2025, can contribute an increased amount of $11,250 to a contribution limit of $34,750.
The new rule that goes into effect on January 1, 2026 states that if the employee earned greater than $145,000 in the previous calendar year, then all catch-up contributions must be made on a Roth 401(k) basis. The $145,000 amount is based on the taxable Social Security wage, therefore, it takes into account taxable wage minus any pretax deductions. A plan administrator can aggregate wages received by a participant in the prior year from certain separate common law employers in determining whether the participant is subject to the Roth catch-up requirement
If the employee is already contributing as a Roth, then this would not have any impact, but for an employee whose contribution is a standard pretax 401(k), then any catch-up contributions must convert to an after-tax Roth. This could cause complications to some payroll systems, so be sure to confirm with your payroll service how this will be handled, as it may require a manual intervention to make the switch.
There is a complication for 401(k) plans that does not allow Roth contributions. Employees under this type of plan, to whom this new rule applies, would no longer have the ability to make catch-up contributions, as the plan is not set up for Roth. If your plan does not allow Roth contributions, you may want to make that plan amendment now to take effect on January 1, 2026. This way, your employees, who are impacted by this new rule, can make catch-up contributions.
In summary, if you have employees who will earn greater than $145,000 for 2025 be 50 or older in 2026 and contribute catch-up contributions, then those amounts greater than the standard 401(k) limit must be deducted and contributed as an after-tax Roth deduction.
While we make every attempt to ensure the accuracy and reliability of the information provided in this document, the information is provided “as-is” without warranty of any kind. Romeo Chicco or PayMaster, Inc. does not accept any responsibility or liability for the accuracy, content, completeness, legality or reliability of the information contained. Consult with your CPA, Labor Attorney, Plan Advisor and/or HR Professional as federal, state, and local laws change frequently.
