Viewed as one of the trickier provisions of the massive, bipartisan SECURE 2.0 Act of 2022, Roth Catch-Up Contributions become effective in 2026, impacting employees who earn over $145,000, and want to make catch-up contributions to their retirement accounts. Read on for pointers and precautions.
SECURE 2.0: Still, Lots to Do
With the goal of putting more workers on the path to solid retirement, SECURE 2.0 gave retirement plan sponsors a lot to digest and do, on a phased in basis from 2023-2027. As a reminder, for example, the mandatory automatic enrollment provisions went into effect in 2025, so “new 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll all eligible employees at a default deferral rate of between 3% and 10% of their salary. Businesses with 10 or fewer employees are exempt from the mandate, as well as businesses which have been operating for less than three years.” Additionally, 2025 brought a shift for long-term, part-time employees, as sponsors of 401(k) plans and 403(b) plans became obligated to “permit employees aged at least 21 who have worked between 500 and 1,000 hours for two consecutive years to participate in the workplace plan for elective deferrals.”
Now, as the time period for implementing SECURE 2.0 winds down (concluding in 2027), many retirement plan sponsors and their Third-Party Administrators (TPAs) are scurrying to attend to the Roth Catch-Up provisions. Ferenczy Benefits Law Center reminds us that there is time to attend to the new catch-up contribution provisions, though it is indeed important to carefully dig into the protocols, and ensure proper implementation:
- While these rules become effective as of January 1, 2026, you do not need to formalize your choices until you adopt your SECURE/SECURE 2.0 Amendment before December 31, 2026. That Amendment should be prepared and sent to you by your document provider before the end of next year.The Final Regs give plan sponsors more options for how to handle this complex plan provision. Some make your life easier, and some may make things more difficult….
- Just to remind you: employees who are affected by the new rules (“Highly Paid Individuals” or “HPIs”) will have to make any catch-up contributions in the form of Roth deferrals. An HPI is someone who has FICA wages in the prior calendar year in excess of a dollar limit. (The IRS just published that this amount is now $150,000 in relation to FICA wages earned in 2025 for the purpose of determining who is an HPI in 2026).
At The American Society of Pension Professionals and Actuaries, Paul Mulholland observes that as the Roth catch-up provision comes into effect on a “good faith” basis in 2026, “It’s one of the trickier rules to implement, and there are some hidden implementation issues that fiduciaries should think about when it comes to their respective plans.” Attorney, Jenny Kiesewetter of Fisher Phillips also anticipates “we’re going to run into a lot of administrative issues next year,” and offers these helpful pointers for retirement plan sponsors related to implementing the Roth Catch-Up provisions of SECURE 2.0:
- The Roth catch-up provision requires employees who earn more than $145,000 in FICA earnings to make catch-up contributions on a Roth basis. The catch-up limit applies to those over 50, and allows them to contribute an additional $7,500 to their qualified account for 2025 (the base limit is $23,500). Those who are ages 60-63 can contribute an additional $11,250 on top of the base $23,500….
- For those plans who lack a Roth option, the higher income participants of that plan “are not allowed to make catch-up contributions…”.
- Catch-up contributions are an optional feature, and sponsors are not actually required to offer them at all.
- …Plans are NOT permitted to require all catch-up contributions to be made on a Roth basis, even for those earning less than $145,000, to make administration simpler. Those with lower incomes must be free to make catch-up contributions on a pre-tax or Roth basis.
More Protocols, More Errors?
Given the sheer breadth and depth of SECURE 2.0, and the corresponding compliance responsibilities, it’s become ever more essential for retirement plan sponsors to protect themselves: plan sponsors are automatically ERISA fiduciaries and can be held personally liable for breaches.
Unforeseen challenges arise all the time, and seemingly small oversights can turn out to be very damaging: on average, resolving an ERISA claim costs even a small business over $1.2 million.
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