Understanding the New Roth Catch-Up Contribution Requirements

By Andrea Smith, Director

Effective January 1, 2026, provisions of the SECURE 2.0 Act, adopted in 2022, introduce significant changes to catch-up contributions for retirement plan participants. Individuals aged 50 and older with FICA wages exceeding $150,000 in 2025 will be required to make catch-up contributions as Roth contributions. Plan sponsors must take proactive steps to ensure compliance, update plan documents, and communicate these changes to participants.

Key Changes to Roth Catch-Up Contributions
  1. Who is affected: As required by the SECURE 2.0 provisions, any plan participant with FICA wages more than $150,000 (indexed for inflation) in 2025 will be categorized as a Highly Paid Individual (HPI). This new classification does not apply to individuals without FICA wages. Any plan participant whose compensation is comprised of self-employment earnings will not be impacted by the Roth catchup requirements.
  2. Mandatory Roth Contributions: Starting in 2026, all catch-up contributions for HPIs must be in the form of Roth contributions. If your plan does not offer Roth deferral elections, HPIs will lose their ability to make catch-up contributions.
  3. Deemed Roth Elections: Plans may implement a deemed Roth election for HPIs, allowing their catch-up contributions to be treated as Roth contributions unless they opt out. This provision ensures that HPIs are automatically enrolled to make Roth catch-up contributions unless they choose otherwise.
  4. Universal Availability Requirement: If your plan permits any HPI to make Roth catch-up contributions, it must also allow all catch-up-eligible participants the same opportunity. This requirement ensures fairness and compliance among all eligible participants.
Implications for Plan Sponsors

Plan sponsors should take proactive steps to prepare for these changes including:

  1. Review Plan Documents: Ensure that your plan documents are updated to reflect the new Roth catch-up contribution requirements and if desired, amend to allow Roth deferral contributions to preserve HPI catch-up availability. An amendment to adopt Roth deferral contribution provisions will need to be enacted no later than December 31, 2025. Amendments to enact provisions of the legislative acts: CARES, SECURE 1.0 and SECURE 2.0 will need to be adopted by December 31, 2026.
  2. Establish required policies and procedures: The final regulations for the Roth catch-up requirement necessitate plan sponsors to adopt policies and procedures surrounding the implementation and monitoring of the Roth catch-up requirements.
  3. Educate Participants: Provide clear communication to participants about the changes and how they will affect their contribution options.
  4. Consult with Advisors: Work with legal, financial and payroll advisors to ensure compliance with the new requirements and to understand the implications of these changes to your plan operations and plan participants.

To aid in compliance with these new requirements, we suggest the following steps:

By January 1, 2026:
  • Implement Roth catch-up contributions for HPIs.
  • Ensure payroll systems and plan operations are updated to support the new requirements.
  • If needed, adopt Plan amendment allowing for Roth contributions to preserve catch-up contribution opportunities for HPIs.
  • Adopt policies and procedures for implementing and monitoring Roth catch-up contributions.
By December 31, 2026:
  • Review and amend plan documents to reflect the new provisions of the legislative acts: CARES, SECURE 1.0 and SECURE 2.0.

The new Roth catch-up contribution requirements represent a significant shift in how catch-up contributions will be managed for certain plan participants. By understanding these changes and preparing accordingly, plan sponsors can ensure a smooth transition and continued compliance with federal regulations. Kernutt Stokes will continue to work with plan sponsors to ensure appropriate communication and policies are in place to make this transition as smooth as possible. As always, if you have any questions or need assistance in navigating these changes, please reach out to Andrea Smith, Kernutt Stokes’ director of retirement plan services.

 

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