Beginning January 1, 2026, a change enacted under the SECURE 2.0 Act affects how certain higher-income individuals can make catch-up contributions to workplace retirement plans.
While this change is largely driven by payroll and plan administration mechanics, it can also meaningfully impact tax planning for individuals who have historically relied on pre-tax catch-up contributions later in their careers.
Below is a summary of what both highly compensated W-2 employees and business owners or plan sponsors need to understand.
What’s Changing
If you are age 50 or older and your prior-year FICA wages exceeded $150,000 (indexed for inflation), then any catch-up contributions you make in 2026 must be designated as Roth (after-tax). Pre-tax catch-up contributions are not permitted for individuals who meet this threshold.
This requirement applies to:
- 401(k) and 403(b) plans beginning in 2026
- Governmental 457(b) plans, which generally follow beginning in 2027
Importantly, this rule applies only to catch-up contributions. Your regular elective deferrals up to the standard annual limit may still be made on a pre-tax or Roth basis, depending on your plan’s design and your elections.
The underlying statutory change comes from Section 603 of the SECURE 2.0 Act, and Treasury and the Internal Revenue Service issued final regulations in late 2025 confirming the 2026 effective date.
How HPI Status Is Determined (and Where Confusion Often Arises)
Whether you are subject to mandatory Roth catch-up treatment is determined based on prior-year FICA wages, generally reported in Box 3 (Social Security wages) of your Form W-2.
Key points to understand:
- The test is applied using prior-year wages (for example, 2025 wages determine treatment in 2026).
- The threshold is based on wages from the employer sponsoring the plan, not household income or total compensation across unrelated employers.
- This is not an AGI or MAGI test, and it is unrelated to Roth IRA income limits.
For employers with more complex structures, including controlled groups, affiliated service groups, or common paymaster arrangements, wages may be aggregated in accordance with applicable payroll and plan rules. As a result, high-income employees and business owners in multi-entity organizations should confirm how their payroll provider and plan administrator apply these aggregation rules in practice.
A Note for Business Owners
Partners and sole proprietors typically do not receive W-2 wages subject to FICA in the same way as employees. Because this rule hinges specifically on FICA wages, many such individuals may not meet the definition of a “highly paid individual” for purposes of mandatory Roth catch-up treatment.
However, plan design, nondiscrimination considerations, and how compensation is structured can still affect whether catch-up contributions are permitted. This is an area where individualized review matters.
What Counts as a “Catch-Up” Contribution
Mandatory Roth treatment applies to all catch-up contributions, including:
- The standard age 50+ catch-up contribution, and
- The enhanced catch-up contribution available to participants ages 60 through 63
For 2026, the catch-up contribution limits are scheduled to be higher than in prior years and remain indexed for inflation. Only the portion of contributions classified as catch-up is affected by the Roth requirement.
How Plans Are Administering the Rule in Practice
Most large recordkeepers and payroll providers are implementing this change using a deemed Roth catch-up approach. Under this method, once a participant who is subject to the rule reaches the standard elective deferral limit, any additional contributions are automatically treated as Roth catch-up contributions for the remainder of the year.
Operationally, this typically means:
- The participant does not need to make a new affirmative election for Roth catch-up contributions.
- The participant must be given the opportunity to stop contributing rather than have catch-up contributions treated as Roth.
- Contribution elections generally reset at the beginning of the following calendar year.
If a plan allows catch-up contributions but does not offer a Roth deferral feature, affected individuals may be unable to make any catch-up contributions at all until the plan is amended to support Roth contributions.
If a plan does not use a deemed Roth method and catch-up contributions are incorrectly made on a pre-tax basis, corrective action may be required. Depending on plan design and correction procedures, this may involve reclassification to Roth or returning the contribution as a taxable distribution. The exact treatment can vary by plan and recordkeeper.
Planning Implications for Highly Compensated W-2 Employees
For many executives and high-income employees, the most immediate impact is the following:
- Catch-up contributions that previously reduced current taxable income may now be after-tax.
- This can increase current-year tax withholding needs and affect take-home pay when maximizing retirement contributions.
- Over time, Roth catch-up contributions may increase tax flexibility in retirement, as qualified Roth distributions are generally tax-free.
Roth contributions are not inherently better or worse. The key point is that one planning lever has changed, and contribution strategy, withholding, and long-term tax modeling should be coordinated accordingly.
Considerations for Business Owners and Plan Sponsors
For employers and plan sponsors, the change is primarily operational:
- Identify which participants meet the HPI threshold based on prior-year W-2 wages.
- Confirm that payroll systems can properly code Roth catch-up contributions beginning with the first payrolls of the year.
- Ensure that plan documents and recordkeeping systems support Roth contributions if catch-up contributions are to remain available for affected participants.
In practical terms, if a plan sponsor wants high earners to continue making catch-up contributions, the plan must be able to accept Roth deferrals.
How This Fits into Broader Planning
For most individuals, this rule does not change the fundamental value of participating in an employer-sponsored retirement plan. What it does change is how a specific portion of contributions is taxed once catch-up eligibility and the wage threshold are met.
Because the determination is based on prior-year wages and applies annually, it adds another moving piece that should be coordinated with compensation, payroll elections, cash flow, and long-term retirement income planning. In some cases, the impact will be largely administrative. In others, it may influence how retirement savings and tax exposure are balanced over time.
As with many SECURE 2.0 provisions, there can be variation in how plans and payroll providers implement the rule in practice. Reviewing elections and plan mechanics early, and revisiting them as compensation changes, can help avoid surprises and ensure the rule is incorporated thoughtfully into an overall financial strategy.
Mandatory Roth Catch-Up Contributions: Questions W-2 Employees Should Ask
For highly compensated W-2 employees, the mandatory Roth catch-up rule is implemented at the plan and payroll level. That means the practical impact depends less on the statute itself and more on how your employer’s retirement plan and payroll systems apply it.
Asking the right questions can help you understand how contributions will be handled, avoid unexpected changes to take-home pay, and ensure your elections align with your broader tax and retirement planning goals.
How does our plan determine whether I am subject to mandatory Roth catch-up contributions?
Ask how the plan identifies individuals subject to the rule, including which wages are used and when the determination is made. In most cases, this is based on prior-year Social Security wages reported in Box 3 of your W-2, but employer aggregation rules or payroll structures can affect the outcome.
Does our plan use a deemed Roth approach for catch-up contributions?
Many plans automatically treat catch-up contributions as Roth once a participant is required to do so. Understanding whether your plan uses a deemed Roth method helps clarify whether contributions will switch automatically or require a new election.
If I reach the standard deferral limit, what happens next?
Confirm whether additional contributions will automatically be treated as Roth catch-up contributions or whether contributions stop unless you make an affirmative election. This affects both cash flow and paycheck withholding.
Can I stop contributing once I hit the standard limit instead of making Roth catch-up contributions?
Plans are generally required to allow participants to stop contributing rather than have catch-up contributions treated as Roth. Ask how this election is handled and whether it requires advance action on your part.
How will this affect my paycheck and tax withholding?
Roth catch-up contributions do not reduce current taxable income. Ask whether payroll withholding will change once catch-up contributions are treated as Roth and whether you should expect a reduction in net pay.
Does our plan allow Roth contributions at all?
If the plan does not offer a Roth deferral feature, affected participants may be unable to make catch-up contributions. This is especially important to confirm if you have historically relied on catch-up contributions late in the year.
How are corrections handled if contributions are misclassified?
Administrative errors can occur, particularly early in the year. Ask how the plan handles corrections if catch-up contributions are mistakenly made on a pre-tax basis and whether that could result in a taxable distribution.
If I change jobs or participate in another plan, does this rule still apply?
The Roth catch-up requirement is generally applied at the plan sponsor level. Ask whether prior-year wages from this employer affect treatment in other plans and how the rule is applied if you join or leave the company mid-year.
Who should I contact if my compensation changes during the year?
Because the rule is based on prior-year wages but applied annually, changes in compensation can affect future treatment. Ask who within HR or payroll can help coordinate contribution elections as compensation evolves.