The Roth catch-up 2026 rule requires that certain higher-paid participants who are age 50 or older make all of their 401(k) catch-up contributions on a Roth (after-tax) basis rather than pre-tax. The rule comes from Section 603 of the SECURE 2.0 Act and takes effect for plan years and taxable years beginning after December 31, 2025. It applies to any catch-up-eligible participant whose prior-year FICA wages from the plan-sponsoring employer exceeded an indexed threshold, set at $150,000 for the 2026 determination based on 2025 wages. For plan sponsors, that means payroll, recordkeeper, and plan-document changes are already due, and for plan auditors it introduces a new operational compliance area to test.
This article explains how the mechanics work, what changed in the final IRS regulations issued in September 2025, and how the requirement affects both plan administration and the annual employee benefit plan audit.
How the Mandatory Roth Catch-Up Rule Works
Catch-up contributions are the extra elective deferrals that participants age 50 and older are allowed to make above the standard annual limit. Historically, a participant could make those contributions on a pre-tax basis, a Roth basis, or both, depending on plan features. SECURE 2.0 Section 603 removes that choice for higher earners starting in 2026.
Under the new rule, a catch-up-eligible participant whose FICA wages from the employer sponsoring the plan exceeded the applicable threshold in the prior calendar year must make all catch-up contributions as designated Roth contributions. Roth contributions are made with after-tax dollars, so affected participants lose the immediate pre-tax deduction on the catch-up portion of their deferrals. The underlying catch-up dollar limit does not change; only the tax treatment of those dollars changes for affected employees.
The wage test is specific. It looks at FICA wages as defined under Internal Revenue Code Section 3121(a), which are the Social Security wages reported in Box 3 of Form W-2. It is measured only against wages from the employer that sponsors the plan, not aggregate income from all sources. A self-employed individual with no FICA wages from the sponsoring employer is generally not subject to the rule, because there are no Box 3 wages to test.
The statutory base threshold in SECURE 2.0 is $145,000, and the statute directs that the figure be indexed for inflation. When the IRS released the 2026 retirement plan limits in Notice 2025-67 on November 13, 2025, it increased the applicable threshold from the $145,000 base to $150,000 for determining who is a higher-paid participant in 2026. So for the 2026 plan year, an employee who had more than $150,000 in Box 3 wages from the sponsoring employer during 2025 must make any age-50 catch-up contributions as Roth. Because the threshold is indexed, sponsors should confirm the applicable figure each year rather than assuming it stays fixed.
What the Final IRS Regulations Changed
The Treasury Department and the IRS issued final regulations on the Roth catch-up rule and related SECURE 2.0 catch-up provisions on September 15, 2025. These finalized proposed rules from January 2025 and gave sponsors the operational detail they had been waiting for ahead of the January 1, 2026 implementation date. You can read the IRS announcement on the final regulations on the new Roth catch-up rule.
The final regulations confirmed that the mandatory Roth catch-up requirement applies for taxable years beginning after December 31, 2025. At the same time, the IRS built in a transition. The specific provisions of the final regulations generally apply to contributions in taxable years beginning after December 31, 2026. For 2026, plans may implement the requirement using a reasonable, good-faith interpretation of the statute. That transition gives sponsors and their service providers one more year to fully align systems and documents with the detailed regulatory language while still complying with the underlying statutory mandate on January 1, 2026.
The regulations also clarified several operational questions. Plans may adopt a deemed Roth election, under which an affected participant who has elected pre-tax catch-up contributions is treated as having irrevocably elected Roth treatment for the catch-up portion, so long as the participant has an effective opportunity to change the election. The rules address how to handle contributions when a participant crosses the wage threshold mid-arrangement and confirm the FICA-wage basis of the test. Importantly, the regulations preserve a related SECURE 2.0 requirement: if a plan permits any catch-up-eligible participant to make catch-up contributions, it must offer a Roth option, otherwise no participant may make catch-up contributions at all. This is often called the universal availability requirement.
What Plan Sponsors Need to Do
The first step is coordinating with payroll and the recordkeeper. Someone has to identify, before or at the start of 2026, which participants had prior-year FICA wages above the threshold from the sponsoring employer. That determination drives whether the payroll system codes their catch-up deferrals as Roth or pre-tax. In controlled-group and multiple-employer arrangements, the wage test is generally applied on an employer-by-employer basis, which adds complexity for sponsors that run payroll across related entities.
Second, the plan must actually offer a Roth deferral feature. Many plans already do, but a plan that has historically been pre-tax only will need to add a Roth source or forgo catch-up contributions entirely. Adding a Roth feature is a plan-document change and usually a recordkeeping change as well, so it cannot be handled at the last minute.
Third, sponsors need clear participant communications. Affected employees should understand that the catch-up portion of their deferrals will be after-tax, that their take-home pay effect will differ from prior years, and how a deemed election works if the plan uses one. Poor communication is a frequent source of participant complaints and downstream correction work.
Finally, sponsors should document their good-faith compliance approach for 2026. Because the detailed regulations do not formally apply until 2027, keeping a written record of how the plan interpreted and implemented the rule protects the sponsor if the approach is later questioned. Sponsors that need help evaluating plan operations can review our audit and assurance services for support on plan governance and compliance.
What the Roth Catch-Up Rule Means for Plan Audits
For plans large enough to require an annual audit, the Roth catch-up rule creates a new operational compliance area that auditors will test. A plan generally becomes subject to the independent audit requirement once it reaches the participant-count threshold, and sponsors approaching that size should understand the 80-120 participant rule that governs when the first audit is due. Plans crossing that line for the first time face added scrutiny, and our overview of the first-year 401(k) audit explains what to expect.
During the audit, expect the engagement team to test whether affected participants were correctly identified using prior-year Box 3 FICA wages, and whether their catch-up contributions were properly coded as Roth. This is a data-driven test. Auditors will typically reconcile payroll records to recordkeeper data to confirm that the wage determination and the contribution coding line up. Mismatches between what payroll withheld and how the recordkeeper posted the contribution are exactly the kind of operational error that surfaces in testing.
Auditors will also look for a corrective process. Errors in the first year are likely given the operational complexity, so plans should have a defined method for catching and correcting misclassified contributions, including recharacterizing pre-tax amounts that should have been Roth. The IRS provided extended correction relief for certain administrative errors related to this rule, and a documented correction procedure demonstrates the kind of internal control that auditors want to see.
The type of audit a sponsor elects also shapes the scope of this testing. Sponsors that choose a limited-scope arrangement under the ERISA Section 103(a)(3)(C) election still need the plan’s contribution operations tested, because certified investment information does not cover contribution compliance. In other words, the Roth catch-up requirement is squarely within the scope of what an auditor examines regardless of the certification election. Sponsors who treat 2026 compliance as a payroll-only project often discover during the audit that documentation and controls were the weak point.
Frequently Asked Questions
Who is subject to the Roth catch-up 2026 rule?
Any participant who is eligible to make catch-up contributions (generally age 50 or older) and whose FICA wages from the plan-sponsoring employer in the prior calendar year exceeded the applicable threshold. For 2026, that threshold is $150,000 based on 2025 Box 3 wages (up from the $145,000 statutory base), subject to annual indexing. Employees below the threshold may still choose pre-tax or Roth catch-up contributions if the plan allows both.
What wages count toward the threshold?
The test uses FICA wages under Code Section 3121(a), which are the Social Security wages reported in Box 3 of Form W-2. It measures only wages from the employer that sponsors the plan, not total household or investment income. Someone with no FICA wages from the sponsoring employer, such as certain self-employed owners, is generally not caught by the rule.
When does the requirement take effect?
The mandatory Roth catch-up requirement applies for taxable years beginning after December 31, 2025, meaning January 1, 2026 for calendar-year plans. The detailed final regulations formally apply beginning in 2027, and for 2026 plans may comply using a reasonable, good-faith interpretation of the statute.
Does the catch-up dollar limit change?
No. The rule changes only the tax treatment of catch-up contributions for affected higher earners, not the amount they can contribute. The catch-up limit itself continues to be set and indexed separately by the IRS.
What happens if our plan does not offer Roth contributions?
Under SECURE 2.0, if a plan permits catch-up contributions it must make a Roth option available; otherwise no participant, regardless of income, may make catch-up contributions. Plans that are currently pre-tax only need to add a Roth feature to continue allowing catch-up contributions in 2026.
How does this rule show up in our plan audit?
Auditors will test whether affected participants were correctly identified and whether their catch-up contributions were coded as Roth, typically by reconciling payroll data to recordkeeper records. They will also assess whether the plan has a documented process to correct misclassified contributions. Weak documentation and payroll-to-recordkeeper mismatches are the most common findings.
