SECURE 2.0 Act, signed into law on December 29, 2022 ("SECURE 2.0"), made two changes to Roth catch-up contributions: (1) requiring catch-up contributions made by certain highly compensated individuals be made as Roth contributions, and (2) allowing individuals age 60-63 to make "mega catch-up" contributions. Final regulations regarding these new catch-up provisions were published September 16, 2025, and are generally effective after December 31, 2026. (A question and answer below clarifies that statutory requirements regarding Roth catch-up contributions are effective January 1, 2026, while regulatory requirements are generally effective January 1, 2027.)
There are some decisions that plan sponsors need to make before the statutory requirements take effect starting January 1, 2026, primarily:
- Will the plan implement deemed Roth contributions?
- Will the plan aggregate some or all of the employers participating in the plan within the same controlled or affiliated service group and/or using the same common paymaster? If yes, which companies will be aggregated for this purpose?
In addition to those decisions, plan sponsors will need to rapidly work with counsel, recordkeepers, third-party administrators, payroll providers and any other relevant service providers to ensure that the Roth catch-up requirements are ready to be implemented by January 1, 2026 (or the otherwise applicable effective date), update plan documents, as applicable, and communicate the changes to participants.
This First Alert will provide a high-level summary of the final regulations as they relate to the Roth catch-up contribution requirement by addressing some common questions on the requirement. Please note a First Alert on the final regulation provisions on the "mega catch-up" contributions for individuals age 60-63 will be issued separately.
Who is impacted?
Affected Participants. Section 603 of SECURE 2.0 amended the Code to add new Section 414(v)(7), which sets forth the requirement that catch-up contributions made by certain participants must be designated as Roth contributions. The specific participants in question are those with $145,000 in FICA wages in the prior year. This threshold is subject to annual cost-of-living adjustments. Since only FICA wages are taken into account, self-employed individuals and partners are not subject to this Roth catch-up requirement. In determining the FICA wages of a specific participant, wages reported in Box 3, of a Form W-2 are to be used.
"Employer Sponsoring the Plan." The FICA wages considered for a participant are the wages from the preceding year from the "employer sponsoring the plan." The final regulations provide some welcome relief and clarity to employers that use a "common paymaster" (as defined in Code Section 3121(s)) or are part of a controlled group or affiliated service group. In these situations, the employer can be aggregated with some or all of the other employers using the common paymaster and/or within the controlled group or affiliated service group who participate in the plan. This is especially helpful for companies with a number of related entities that are part of the same controlled group that
participate in one 401(k) plan and whose workforce members frequently transfer between those entities within a controlled group. If a plan sponsor wants to take advantage of this permissible aggregation, however, it must specify in the plan which aggregation method it is using and what groups are being aggregated. The final regulations also provide special provisions for optional aggregation on W-2 reporting for asset purchases.
Does a plan need to force a participant who is subject to these requirements to make all catch-up contributions as Roth contributions?
Essentially, yes. The final regulations permit plans to deem that a participant who is subject to the Roth catch-up requirement irrevocably designates any catch-up contributions as Roth contributions. In order to implement "deemed Roth elections" the participant must have the ability to make a new election that is different than the deemed election, and the deemed election must cease within a reasonable period of time after the employee ceases to be subject to the Roth catch-up requirements or there is an amended Form W-2 that indicates the employee is not subject to the Roth catch-up requirements. If catch-up contributions are deemed Roth, but one of the deemed election termination events occurs,
any contributions that were deemed Roth prior to the end of the "reasonable period of time" do not need to be recharacterized as pre-tax contributions.
The final regulations permit deemed Roth elections in both of the following scenarios: where a plan automatically designates contributions in excess of the 401(a)(30) limit as catch-up contributions and where participants make separate elections to treat a portion of elective deferrals as catch-up contributions.
If a plan sponsor wants to adopt a deemed Roth catch-up election, it must do so formally in the plan document. While the deemed Roth catch-up election feature is permissible, if a plan sponsor does not adopt it, it is precluded from taking advantage of the two specific correction methods described below.
Can a plan sponsor force all catch-up contributions to be made as Roth contributions?
No. Plans are not permitted to require that all participants’ catch-up contributions be designated as Roth contributions.
What if an impacted participant has made elective Roth deferrals during a plan year?
Any Roth elective deferrals made by a participant during a plan year count towards the Roth catch-up requirement. A catch-up contribution is only required to be a designated Roth contribution to the extent the participant did not previously make designated Roth contributions during the year that met the applicable catch-up limit.
This feature provides the participant with additional flexibility. For example, let’s assume a participant is required to make catch-up contributions as Roth contributions in 2026, and is part of a plan that has separate elective deferrals and catch-up deferrals. Let’s assume the participant in this example is age 52. We will also assume that the elective deferral limit is the same as 2025 (the threshold for 2026 has not yet been released by the IRS at the time of publication of this alert). By July 2026, the participant made $23,500 in elective deferrals, $7,500 of which were Roth contributions and $16,000 as pre-tax elective deferrals. In September 2026, the participant could make a separate
catch-up election of $7,500 and that amount would not need to be designated as Roth because the participant already satisfied his Roth requirement for the plan year.
It is important to note that the preamble states that in-plan Roth rollovers voluntarily elected by a participant cannot be used to satisfy the Roth catch-up requirement. For example, after-tax contributions that are then rolled over as in-plan Roth rollovers would not count towards the limit.
What if a plan does not permit participants to make Roth contributions?
If a plan does not provide for Roth contributions, then catch-up eligible participants who are subject to the Roth catch-up requirements must not be permitted to make catch-up contributions.
What if a participant was subject to the Roth catch-up requirement but made catch-up contributions on a pre-tax basis? Is there a correction opportunity?
The final regulations provide two permissible correction methods for this scenario:
- Under the Form W-2 method, the plan may correct a participant’s pre-tax catch-up contribution by transferring the elective deferral, as adjusted for earnings and losses, into the participant’s designated Roth account and reporting the elective deferrals (without earnings and losses) as a designated Roth contribution on the participant’s Form W-2.
- Under the in-plan rollover correction method, the plan can directly roll over the elective deferrals, as adjusted for earnings and losses, from the participant’s pre-tax account into the participant’s designated Roth account. The entire amount (including the earnings and losses) must be reported as taxable income on a Form 1099-R. The preamble clarifies that a plan’s use of this correction method is considered an administrative determination and is not a protected benefit, right or feature.
For a plan to be eligible to use either correction method, the plan sponsor must have practices and procedures designed to result in compliance with the requirements at the time the elective deferral is made. And, as noted above, these correction opportunities are available only if the plan provided for deemed Roth elections.
A plan must apply the same correction method for all similarly situated participants, but the same correction method does not need to apply to all participants within a plan.
When does a plan sponsor need to make corrections?
Although some corrections of errors made in implementing this requirement could be made by the end of the year following the end of the year in which the error occurred, often there would be good reason to complete the correction by the time excess contribution and ADP limit errors are required to be corrected.
Does a plan sponsor always have to correct a failure of this Roth catch-up requirement?
No. If the amount that was impermissibly contributed as a pre-tax catch-up contribution is less than $250, no correction is necessary. Additionally, if the participant was determined to exceed the Roth catch-up wage threshold after the correction deadlines noted above and because of an amended or corrected Form W-2, then no correction is necessary.
When does a plan sponsor have to start implementing the Roth catch-up requirements?
Generally, implementation is required for plan years beginning after December 31, 2025. For most plans, that means a January 1, 2026, effective date. However, for most plans, the final regulations are generally applicable for taxable years beginning after December 31, 2026. In this "gap period," where the requirements are effective but the final regulations are not, the departments expect plan sponsors to implement the requirements under a reasonable, good faith interpretation standard. Generally, an employer is permitted to apply the final regulations prior to 2027, and while implementation does not necessarily have to comply exactly with the final regulations during the "gap period," plan
sponsors will need to adjust plan administration to be in full compliance with the final regulations when they become effective in 2027. Note that there are different effective dates for governmental plans and collectively bargained plans.
Do plan sponsors need to amend their plans by December 31, 2025?
No, not necessarily. Most plans are not required to be amended for these SECURE 2.0 changes until December 31, 2026.
Conclusion
The final regulations provide helpful guidance for plan sponsors in implementing the new Roth catch-up provisions. Plan sponsors will need to coordinate their compliance efforts with their plan/service providers and make sure to effectively communicate the new provisions to plan participants.
If you have any questions about the final regulations, SECURE 2.0, or anything else impacting your retirement plan(s), please contact the Calfee attorney you regularly work with or one of the authors listed below.
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