SECURE 2.0 Roth Catch-Up Rule: What Employers & Employees Should Know

The SECURE 2.0 Act significantly changes how certain retirement plan catch-up contributions must be treated beginning in 2026. Under existing rules, participants age 50 and older may make additional elective deferrals—commonly known as catch-up contributions—if their employer’s retirement plan permits them. SECURE 2.0 adds a new requirement under Internal Revenue Code §414(v)(7) mandating that catch-up contributions made by certain higher-paid employees be designated as Roth contributions rather than traditional pre-tax deferrals. Roth contributions are made with after-tax dollars and included in gross income in the year of contribution; however, qualified distributions from Roth accounts, including earnings, are generally received tax-free. Although the rule was originally scheduled to take effect in 2024, the IRS provided a two-year administrative transition period, making compliance mandatory for tax years beginning after December 31, 2025—effectively January 1, 2026 for most plans.

The mandatory Roth treatment applies to participants age 50 or older whose wages from the employer sponsoring the plan exceeded a specified threshold in the prior calendar year. The statutory threshold is $145,000, indexed annually for inflation; for example, catch-up contributions made in 2026 must be treated as Roth contributions if the participant earned more than $150,000 in 2025 Box 3 W-2 wages from that employer. The rule applies across multiple plan types, including 401(k), 403(b), and governmental 457(b) plans, and covers both standard age-50 catch-ups as well as enhanced catch-ups available to participants ages 60 through 63. Importantly, new employees are exempt from the requirement during their first year of employment, regardless of compensation level, and self-employed individuals are not subject to the mandate. Participants below the wage threshold may continue to make catch-up contributions on a pre-tax basis if the plan allows, but plans must also permit those participants to elect Roth treatment for catch-ups if Roth catch-ups are offered to higher-paid employees.

Plan design considerations are a key consequence of the new rule. While plans are not required to offer Roth contributions generally, a plan that permits catch-up contributions for employees subject to mandatory Roth treatment must have a Roth feature in place. For plans without a Roth component, the catch-up contribution limit for affected higher-paid employees is effectively reduced to zero, preventing them from making any catch-up contributions at all. As a result, many plan sponsors without an existing Roth option may wish to implement one to avoid limiting retirement savings opportunities for certain employees. Employees approaching or exceeding the wage threshold should also be aware that the tax treatment of their catch-up contributions will change, potentially impacting both their take-home pay and overall retirement planning strategy.