Understanding the New Roth Catch-Up Contribution Requirement
By Mike Rahn, CISP
One of our small business clients who sponsors a 401(k) plan mentioned that he wants to amend his plan to allow Roth deferrals. He said that he and some employees over age 50 are eligible to make “catch-up” contributions, but—due to their higher income—must make them as Roth contributions, not pretax. Is this a new requirement?
SECURE 2.0 included a provision that requires most employees with annual income of $145,000 or more—indexed—to make their catch-up salary deferral contributions as Roth contributions. This was initially intended to take effect in 2024, but was temporarily delayed to 2026. This SECURE 2.0 provision was enacted to limit the loss of tax revenue that results from workers making pretax deferrals in 401(k) and other deferral-type retirement plans. Final regulations for this SECURE 2.0 provision were released in October 2025.
You indicated that “most” of these highly-paid employees are affected. Are there exceptions?
This provision applies to those who make salary deferral contributions in a 401(k), 403(b), or governmental 457(b) plan. It does not apply to SIMPLE IRA or salary reduction simplified employee pension (SAR-SEP) plans.
How is a person’s income for this purpose determined, particularly when some individuals are common-law employees, some are self-employed, etc.?
Specifically, income is determined by “Social Security wages” from the plan-sponsoring employer, shown in Box 3 of IRS Form W-2, Wage and Tax Statement. This generally does not apply to those who do not receive W-2 income, such as those taxed as sole proprietorships, or partners in a partnership.
It is a prior-year determination; so—for example—the income reported in Box 3 of the 2025 Form W-2 will determine whether the requirement applies in 2026. The initial $145,000 amount was indexed to $150,000 for 2025, so those with 2025 Box 3 income of $150,000 or above must make catch-up deferrals as Roth amounts in 2026. For the first year of employment, only actual earnings from the plan-sponsoring employer—not pro-rated earnings for a partial year of employment—will determine whether the threshold is reached and catch-up salary deferral contributions in the coming year must be Roth.
How is this requirement applied to those who might participate in deferral-type plans of more than one employer?
Income received from two unrelated employers is not aggregated for determining whether the income threshold has been reached. Service for two or more employers that are part of a controlled group or affiliated service group are not aggregated unless an election to aggregate has been made at the employer level. Service for two or more employers that are part of a multiple employer plan (MEP) that is not a controlled group or an affiliated service group are also not aggregated.
Does this new requirement mean that all affected plans—401(k), 403(b), and governmental 457(b)—must offer a Roth contribution option?
No. An employer is free to offer only a pretax salary deferral option. If that is the case, then those employees whose income would require catch-up deferrals to be made as Roth amounts will be unable to make catch-up deferral contributions.
Could this new requirement complicate the salary deferral election and plan administration processes for employers and employees? Some employees who are making pretax salary deferral contributions may want to continue deferring and make Roth catch-up contributions, while some may not.
Yes, it could complicate things. One simplification described in the final regulations is called a “deemed Roth election.” By this plan election, an employer can assume that catch-up-eligible employees who are making pretax salary deferrals have—by default—elected to make Roth deferrals after their pretax deferrals reach the base deferral limit. Their employer must, however, have previously given them the option to stop deferring at that point.
