2026 IRS Catch-Up Contribution Rules: What Employers Should Know

The Internal Revenue Service (IRS) has released its Final Regulations for significant changes to retirement plan catch-up contributions, as mandated by the SECURE 2.0 Act. These updates introduce a mandatory Roth treatment for high-earning participants and establish higher contribution limits for those nearing retirement. For plan sponsors, these changes require immediate attention to ensure administrative readiness and compliance.

This article provides a comprehensive overview of the new rules, outlines key compliance dates, and offers a checklist to help you prepare your plan and support your employees through this transition.

Key SECURE 2.0 changes to 2026 Roth catch-up contributions

The Final Regulations clarify several critical provisions that will impact how your retirement plan operates. Understanding these changes is the first step toward successful implementation.

1. Roth catch-up mandate for high earners in 2026

Beginning January 1, 2026, a significant change will affect employees who earned more than $150,000 in Social Security wages during the preceding calendar year. Any catch-up contributions made by these high-earning individuals must be designated as Roth (after-tax) contributions.

This means pre-tax catch-up contributions will no longer be an option for this group. Instead, their contributions will be directed to the Roth portion of your plan, where they will grow tax-free. It is important to note that the IRS did not extend the transition relief period, making the 2026 effective date firm. Plan sponsors must ensure their systems are prepared to accommodate this mandate.

2. Good-faith Roth compliance for 2026

The IRS has provided a "good faith" compliance period for the 2026 calendar year. This provision acknowledges that plan sponsors may encounter minor administrative challenges while implementing the new systems. As long as an employer is making a diligent and good-faith effort to comply with the statute, minor errors will not be subject to penalties during this initial year.

Full compliance will be required starting in 2027. To meet this standard, it is essential to begin reviewing your payroll systems now to ensure you can accurately track participants' prior-year Social Security wages, as reported in Box 3 of Form W-2.

3. Administrative flexibility for implementing Roth catch-up rules

To ease the administrative burden on plan sponsors, the Final Regulations include several flexible provisions:

• Automatic Roth treatment: Plans can be amended to automatically treat catch-up contributions from high earners as Roth contributions, simplifying the process for both administrators and employees.
• Spillover plan administration: For plans that use a "spillover" method (where contributions exceeding the regular deferral limit automatically become catch-up contributions), sponsors have discretion in determining how and when the Roth designation is applied.
• Extended correction period: If certain catch-up contribution errors occur, employers now have until the end of the following tax year to make corrections without penalty, providing valuable relief for good-faith administrative mistakes.

4. 2025–2026 higher catch-up limits for employees ages 60–63

Effective January 1, 2025, employees aged 60 through 63 will be eligible for a higher catch-up contribution limit. This enhanced limit is the greater of:

• $10,000 (indexed annually for inflation), or
• 150% of the standard catch-up limit for that year. For 2025, this amount is $11,250.

This provision offers a powerful tool for older employees to accelerate their savings before retirement. However, the regulations stipulate a controlled-group consistency rule. If one plan sponsored by an employer offers this higher limit, all 401(k) plans within that controlled group must also offer it.

2026 IRS contribution limits for 401(k) and 403(b) plans

The IRS releases official inflation-adjusted limits annually. Plan sponsors can now prepare for 2026 based on the following announced framework.

• Employee elective deferral limit: This limit for 401(k) and 403(b) plans will be adjusted for inflation by the IRS, increasing from $23,500 to $24,500.
• Standard catch-up limit (age 50-59, 64+): This limit will also be subject to an inflation adjustment, as determined by the IRS for 2026, increasing from $7,500 to $8,000.
• Enhanced catch-Up limit (ages 60-63): This will remain the greater of the indexed $10,000 amount or 150% of the standard 2026 catch-up limit. There is no adjustment to this figure and will remain at $11,250.

Communicating these limits to employees can help them plan their future contribution strategies for 2026.

Roth vs. traditional catch-up contributions: what changes for high earners in 2026

With the new mandate, it is crucial for plan sponsors and high-earning employees to understand the differences between Roth and traditional contribution strategies. While high earners will be required to use Roth for catch-up contributions starting in 2026, understanding the mechanics is key for effective communication.

Roth catch-up contributions

• Pros:
  • Tax-free growth and withdrawals: Contributions grow tax-free, and qualified withdrawals in retirement are also tax-free.
  • Tax diversification: Provides a source of tax-free funds in retirement to hedge against potentially higher future tax rates.
  • No RMDs (for Roth IRAs): If rolled into a Roth IRA, these funds are not subject to Required Minimum Distributions (RMDs).
• Cons:
  • No upfront tax deduction: Contributions are made after-tax, resulting in a higher current taxable income compared to pre-tax contributions.
  • Higher immediate tax bill: Employees will see a slightly lower take-home pay compared to making pre-tax contributions of the same amount.

Traditional (pre-tax) catch-up contributions

• Pros:
  • Immediate tax deduction: Contributions reduce current taxable income, lowering the employee's immediate tax liability.
  • Higher take-home pay: The upfront tax savings result in a larger paycheck compared to an equivalent Roth contribution.
• Cons:
  • Taxable in retirement: Both contributions and earnings are taxed as ordinary income upon withdrawal in retirement.
  • Subject to future tax rates: The ultimate tax burden depends on unknown future tax rates, which could be higher than current rates.

For a high-earning employee, the mandatory Roth catch-up starting in 2026 means they pay taxes on the contribution amount now. This may be advantageous if the employee expects to be in a similar or higher tax bracket during retirement. By paying taxes today, they secure a source of tax-free income for the future, which can be a valuable component of a comprehensive retirement income strategy.

Employer checklist to prepare for the 2026 Roth catch-up mandate

The countdown to these effective dates has begun. Proactive preparation is essential for a smooth and compliant transition.

• Review payroll data: Work with your payroll department to confirm you can accurately identify and track employees with prior-year Social Security wages exceeding $150,000.
• Coordinate with service providers: Connect with your recordkeeper and payroll provider to ensure their systems are prepared to administer the Roth catch-up mandate and the higher limits for ages 60-63.
• Amend plan documents: Consult with your ERISA counsel or third-party administrator to make necessary plan amendments that reflect these new rules.
• Communicate with employees: Develop a clear communication plan to inform employees of the changes, especially high earners and those aged 60-63 who can benefit from the new limits.
• Align with your advisor: Partner with your retirement plan advisor to confirm compliance timelines, review administrative procedures, and create effective employee education materials.

Preparing your retirement plan for SECURE 2.0 Roth catch-up changes

The final IRS regulations provide the clarity needed to move forward, but they also underscore the need for timely action. By taking deliberate steps now, you can ensure your plan remains a valuable and compliant benefit for your employees.

Our team is prepared to guide you through every aspect of this transition, from plan document review to employee communication strategies. Contact us today to review your plan's readiness and ensure you are positioned for success.

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