Effective January 1, 2026: Roth catch-up contributions for high income earners
Starting January 1, 2026, participants earning more than $145,000 (indexed) in FICA wages in the prior year must make all catch-up contributions as Roth contributions.
- FICA wages include salary, tips, bonuses, commissions, and taxable fringe benefits (Box 3 on W-2).
- FICA wages would be defined by reference to Social Security taxes and considered in the same year that they are considered for Social Security tax purposes.
- Wage calculation is not prorated or aggregated across multiple employers. Eligibility is only met upon exceeding the $145,000 (indexed) threshold with the current employer.
- Section 603 applies to age 50+ and the enhanced age 60-63 catch-up contribution types1
- All Roth contributions made during the year count towards the Roth catch-up limit. This will be regardless of when they were contributed for purposes of determining if the mandatory Roth deferrals are satisfied.
- Employers can deem a participant's pre-tax catch-up election to be a Roth catch-up election. Although they must provide the participant with an effective opportunity to stop catch-up contributions.
- Distribute pretax contributions and earnings: Employers may return the contribution as an excess deferral to the plan. (Employers must return excess deferrals in the scenario where Roth is not available to the plan).
- Correct W-2: Employers may correct the W-2 for the same tax year and must be corrected before issuance to the employee.
- In-plan Roth conversion: Corrections may be made by April 15th via in-plan Roth conversion. A 1099-R will be issued for the tax year in which the conversion was processed.
- FICA Participation: An individual who did not have any FICA wages from the Employer from the prior calendar year would not be subject to the mandatory Roth catch-up and can maintain Pre-Tax Salary Contribution catch-up.
- Optional Roth Offering: Employers are not mandated to offer Roth. If Roth is not offered, those participants earning greater than $145,000 (indexed) in the previous year cannot make any catch-up contributions.
Checklist for Plan Sponsors/Employers
Let us assist you in navigating the Roth catch-up requirements
- If your Plan offers catch-up contributions but does not currently offer Roth, you may need to update your Plan. Otherwise, high-income earners will no longer be eligible to contribute catch-up contributions. (If your plan offers Roth, skip to question 2)
Have you discussed your options with your Plan Document Sponsor to begin to prepare?
Options include:__ Amend your Plan document to include Roth deferrals__ Do not amend your Plan document and limit catch-up contributions to only non-impacted participants who earned $145,000 (indexed) or less in FICA wages in the previous year - Have you discussed the Secure 2.0 Section 603 Roth catch-up provision with your payroll organization or payroll software provider?
__ Yes__ No; but I will reach out to our payroll provider to review this checklist
- Plan Sponsors/employers have the responsibility to identify eligibility for catch-up contributions.
Can you/your payroll system:__ Identify impacted participants who earned more than $145,000 (indexed) in FICA wages in the previous year?__ Restrict catch-up contributions to the Roth source for impacted participants who earned more than $145,000 (indexed) in FICA wages in the previous year?__ Continue allowing pre-tax catch-up contributions for non-impacted participants who earned $145,000 (indexed) or less in FICA wages in the previous year? - Are you planning to educate participants of the new rule?
__ Yes__ No; but I understand impacted participants who earned more than $145,000 (indexed) in FICA wages in the previous year must be provided with an opportunity to change allocations if Roth deferral source for catch-up contributions is not desired.
Note: Information will be available on the website to educate Participants on the new rule.
[1] Under current proposed regulations, a participant who is eligible for Special 457(b) and 403(b) catch-ups may make such contributions on a pre-tax or Roth basis and are not required to make such contributions as Roth. Additionally, Section 603 has made changes to the Catch-Up coordination rules that may allow participants to utilize both Special Catch-Ups Contributions and Age 50+ Catch-Ups Contributions in the same year under certain circumstances. However, final guidance on this aspect of Section 603 is needed.
This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.
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