2025 catch-up contribution rules 

Catch-up contributions allow participants ages 50 and older to put extra money into their retirement accounts, boosting their savings as they approach retirement. For those ages 60 to 63, the allowable contribution is even higher, known as a super catch-up. Regular and super catch-up contributions are typically made on a pretax basis, but plan sponsors may allow participants to elect Roth instead.

What’s changed under the new Roth catch-up contribution rule?

Beginning January 1, 2026, regular and super catch-up contributions for certain high-paid participants (Roth catch-up participants) need to be made on an after-tax Roth basis instead of pretax. This rule applies to participants who:

• Are 50 years or older
• Are enrolled in a 401(k), 403(b), or 457(b) governmental plan
• Have FICA wages that exceed $150,000 (adjusted for the cost of living) in the previous calendar year from the employer sponsoring the plan

Who’s exempt from the rule?

• Participants whose FICA wages are below the Roth catch-up wage threshold can make contributions on either a Roth or pretax basis. 
• Participants who don’t receive FICA wages, such as partners and sole proprietors who only have self-employed income, aren’t subject to the rule.

When do plan sponsors need to comply with the rule?

The Roth catch-up rule must be operational on January 1, 2026 (with an exception for multiemployer union plans). This means participants subject to the rule can only make their catch-up contributions as Roth, and if they're not, a correction will be required unless an exemption applies. 

For 2026, retirement plan administrators must follow a reasonable, good faith interpretation of the rule, which provides some flexibility in how it's implemented. Starting in 2027, however, all requirements under the final regulations, including the nuances discussed in this article, must be strictly followed.  

Key rules under the final regulations 

How are FICA wages determined?

FICA wages are the wages reported in Box 3 of Form W-2. They're generally calculated separately for each employer, and aren’t combined even if the employee works for more than one employer participating in the same plan. 

For example, if a participant receives $100,000 in FICA wages from both a parent company and its wholly owned subsidiary ($200,000 in total), the participant won’t be subject to the Roth catch-up requirement, even if both companies participate in the same plan. If, instead, the participant had prior year FICA wages from one of those companies that exceeded the $150,000 threshold, the catch-up contributions made from compensation from that company would have to be Roth. The catch-up contributions made from compensation from the other company would not. 

Plan documents may allow optional aggregation of wages for specified employers, provided they are:

• Controlled group members
• Employers under a common paymaster agreement as described in section 3121(s) of the Internal Revenue Code  
• Employers acquired in an asset purchase during the year, provided they used the alternate procedure under IRS Revenue Procedure 2024-53

Plan considerations—Optional aggregation would primarily be used for administrative simplification. In this case, the plan sponsor must identify the aggregated employers and coordinate this information with their payroll provider, recordkeeper, TPA, and other plan advisors.

What's the deemed Roth catch-up election? 

Plans may provide for a deemed Roth catch-up election (deemed election), meaning that Roth catch-up participants are automatically considered to have elected to make their catch-up contributions on a Roth basis. For these participants, intended pretax catch-up contributions are automatically switched to Roth.

The deemed election is contingent on the participant having an effective opportunity to make a different election, considering all relevant facts and circumstances. While the final regulations don’t define “effective opportunity” in this context, communicating this deemed election to participants annually and including their right to make an alternative election (such as stopping pretax contributions after they reach the IRS limit) should generally satisfy this requirement.  

The deemed election may apply whether the plan uses a separate election for catch-up contributions throughout the year or a spillover design where a single election is made and contributions “spill over” to catch-up after a limit is reached. The timing of this switch can vary based on the design—separate catch-up elections versus spillover elections. Payroll processing procedures and system capabilities may also affect the timing.

• Spillover election—Pretax contributions may automatically switch to Roth once they reach the annual IRS limit ($24,500 for 2026), based on either pretax contributions alone or combined pretax and Roth contributions.
• Separate catch-up elections—Pretax catch-up elections may automatically switch to Roth for each payroll period (starting with the first payroll of the year), even before combined pretax deferrals (regular and catch-up) reach the 402(g) deferral limit.

Plan considerations—Pretax contributions could switch to Roth earlier than participants expect. For example, if a spillover design uses combined pretax and Roth contributions to determine when the IRS limit is reached, the switch to Roth may occur sooner—potentially before the participant has fully utilized their pretax deferral opportunity. Participants who assume Roth treatment begins only after reaching the pretax limit may be surprised when reviewing pay stubs or tax forms. This could lead to unexpected tax outcomes, such as higher taxable income earlier in the year or reduced take-home pay. To mitigate these risks, plan sponsors should provide clear, upfront communication about when the switch occurs based on their payroll provider’s processing procedures.

What are the correction methods?

While the final regulations provide some flexibility on how to implement the Roth catch-up requirement, the process remains complex, and mistakes are likely to occur. If Roth catch-up participants make pretax catch-up contributions, the final regulations offer two correction methods provided certain prerequisites are met. 

W-2 correction method—With this approach, the pretax contribution amount alone, excluding earnings adjustments, is reported as designated Roth contributions on the participant’s Form W-2 for the year in which they would have been made had the failure not occurred. The recordkeeper must then transfer the participant’s pretax catch-up contributions, adjusted for gains or losses, to their Roth account. This method can’t be used if the participant’s Form W-2 for that year has already been issued to them or filed with the IRS.

In-plan Roth rollover method—This method requires an in-plan Roth rollover of the pretax catch-up contribution, adjusted for gains or losses. The adjusted amount, not just the contribution, is reported as taxable income on Form 1099-R for the year of the correction. This method may be used even if the plan doesn’t otherwise permit in-plan Roth rollovers. However, full correction must be made by the end of the following tax year (or, if the failure involves an excess ADP limit or excess plan limit, the end of the following plan year).   

Guidelines for using these correction methods

Plan considerations—The flexibility to use either the W-2 correction method or the in-plan Roth rollover correction method is helpful, but both approaches present challenges.

The W-2 method offers one clear advantage—only the contribution amount is taxed, not the associated earnings. However, it requires significant coordination between payroll providers and recordkeepers. Payroll providers must update W-2 reporting while recordkeepers have to reclassify contributions and earnings. Its early deadline also poses challenges for failures identified during annual compliance testing, which often occurs after the W-2 correction window closes.

The in-plan Roth rollover method, on the other hand, offers a later deadline and avoids having to involve the payroll provider, making it operationally simpler. However, it could carry steep tax consequences for participants, including taxation of associated earnings, potential double taxation on excess deferrals, and the recapture tax, which was clarified in the final regulations despite concerns raised in comment letters.

Timely identification and correction of failures will be critical to minimize administrative complexity and protect participants from unnecessary tax exposure. 

What happens if the plan doesn’t offer Roth?

Retirement plans that offer only pretax contributions can still allow catch-up contributions. However, participants with FICA wages exceeding the Roth catch-up wage threshold ($150,000 in 2025) would be ineligible to make catch-up contributions.

If a plan doesn't offer Roth, it may need to exclude certain highly compensated employees (e.g., owners or partners) from making catch-up contributions to satisfy benefits, rights, and features (BRF) nondiscrimination rules, even if they aren’t subject to the Roth catch-up requirement because they don’t receive FICA wages. The final regulations provide a safe harbor for satisfying this requirement if the plan excludes individuals who receive self-employment earnings above the Roth catch-up wage threshold from making catch-up contributions.

Plan considerations—The safe harbor for BRF nondiscrimination requirements may help mitigate some administrative complexities. However, before implementing such a provision, owners and partners should understand the impact on their long-term financial goals. Many will likely prefer adding Roth to the plan rather than excluding themselves from the benefit of catch-up contributions.

Also, keep in mind that while plans can limit contributions to pretax only, they can’t restrict them to Roth alone. Additionally, a plan can’t mandate that all catch-up contributions be made on a Roth basis regardless of prior year FICA wages. 

Collaboration will help drive success

The Roth catch-up requirement significantly changes retirement plan administration, impacting plan sponsors, payroll providers, plan recordkeepers, TPAs, ERISA consultants, and plan participants. This mandate under SECURE 2.0 represents another major evolution in payroll and plan administration responsibilities.

While the final regulations provide a clearer path forward, operational challenges will require careful planning and close coordination among payroll, recordkeeping, and plan administration teams. By sharing best practices, aligning processes, and maintaining open communication, industry stakeholders can navigate these changes effectively and ensure compliance without compromising the participant experience. 

You can access the full text of the final rules by visiting the Office of the Federal Register.