Catch-Up Contribution

The final regulations for SECURE 2.0 Act of 2022 were released on September 15, 2025.  There is a key part of this regulation that may affect employers who sponsor a 401(k) plan. 

Effective January 1, 2026, catch-up contributions made for a highly paid individual age 50 or over, as defined below, must be made on a Roth basis. To comply with this requirement, plans may adopt a deemed Roth election. This option automatically treats catch-up contributions from highly paid individuals as Roth once the participant reaches the annual IRS deferral limit ($24,500 for 2026). If a plan does not offer Roth contributions, these highly paid individuals will not be eligible to make catch-up contributions.

A highly paid individual is any participant who earned more than a certain FICA wage threshold from the employer sponsoring the plan during the prior calendar year.  The 2025 FICA wage threshold is $150,000, which will be used to determine whether catch-up contributions must be made as Roth in 2026.  This FICA wage threshold will be indexed annually. This requirement applies to 401(k), 403(b) and governmental 457 plans.  These FICA wages are defined as the Social Security wages reported in Box 3 of the Form W-2.  Individuals who make under the stated FICA wage threshold can continue to make catch-up contributions on a pre-tax basis.

Employers sponsoring a 401(k) plan may want to ensure the following is handled for payroll purposes:

• Identify employees who exceed the annual FICA wage threshold and report that information after year end, to apply to the following year for this purpose.
• Make sure payroll providers will automatically convert catch-up contributions for these highly paid individuals from pre-tax to Roth once the IRS deferral limit is reached for the year.
• Deferrals will need to be reset back to pre-tax deferrals at the start of each year unless a new election is submitted.

LEGAL DISCLAIMER: The information presented on this blog should not be construed as legal, tax, accounting or any other professional advice or service.  You should consult with a professional advisor familiar with your particular situation for advice concerning specific tax or other matters before making any decision.