Roth catch-up rule

What the Roth catch-up rule is

SECURE 2.0 added a rule for catch-up contributions made by higher earners. If an employee’s wages subject to Social Security tax (FICA wages) from the employer sponsoring the plan were above a threshold in the prior year, any catch-up contributions they make must be designated Roth contributions. The threshold is indexed: $150,000 of 2025 wages decides who is covered in 2026.

For 2027 catch-ups, the test uses 2026 FICA wages above $155,000, and the IRS’s final rules apply in full from January 1, 2027. (IRS Notice 2026-66)

The IRS delayed enforcement through 2025. The Treasury and IRS issued final regulations in September 2025. Those regulations generally apply to contributions in tax years beginning after December 31, 2026, and plans are expected to follow a reasonable, good-faith reading of the statute for 2026.

Why it matters to employers

This is a payroll and plan design task as much as a tax rule. You need to identify affected employees from prior-year W-2 Box 3 wages, flag them in payroll, and switch their deferrals to Roth once they pass the regular $24,500 limit. Your plan also needs a Roth feature. Without one, affected employees cannot make catch-up contributions.

Example

A 55-year-old sales director earned $185,000 in FICA wages from you in 2025. In 2026 she can defer $24,500 pre-tax or Roth as she chooses, but her $8,000 catch-up must be Roth. A 55-year-old colleague who earned $120,000 in 2025 can still choose pre-tax.

Common mistakes

• Using total pay or 401(k) compensation for the threshold. The test is FICA wages from the employer sponsoring the plan.

• Applying the rule to partners or self-employed owners who have no FICA wages from the employer.

• Looking at current-year pay. The test always looks back one year.

• Adding a Roth feature too late for payroll to be ready on January 1.