Coming in 2026: Roth-Only Catch-Up Contributions for High Earners
What 401(k) Plan Sponsors Need to Know – Before It’s Too Late
If you’re an Human Resources professional, benefits manager, CFO, or anyone involved in administering an employer sponsored retirement plan, a major change is heading your way.
And most teams aren’t ready.
Starting January 1, 2026, employees earning more than $145,000 (indexed for inflation) in the prior year who are turning age 50 or older will be required to make their catch-up contributions as Roth (after-tax).
If your plan doesn’t offer a Roth option or your payroll system isn’t equipped to identify affected employees, those catch-up contributions can’t happen.
It’s not just a change in tax treatment. It’s an operational minefield.
Where Did This Rule Come From—and Why?
This new requirement was introduced in SECURE 2.0, passed in December 2022.
Congress’s goal was to raise tax revenue by pushing more high-income workers to use Roth accounts, which are taxed up front.
It might sound simple on paper—but in practice, this creates compliance challenges, system upgrades, and communication hurdles for plan sponsors and employers.
What This Means for Plan Administrators, HR, and Payroll
1. Catch-Up Contributions Will Be Roth-Only for High Earners
- Applies to employees with FICA wages > $145,000 in the prior year (adjusted annually)
- Starts January 1, 2026
- Affects 401(k), 403(b), and 457(b) plans
2. No Roth Option? No Catch-Ups.
- If your plan does not allow Roth contributions, you must block catch-up contributions for these employees altogether
- This puts HR, payroll, and plan sponsors at risk for noncompliance and participant frustration
3. Employee Take-Home Pay Will Be Affected
- Roth catch-ups reduce net pay more than pre-tax contributions
- Without clear communication, this may catch employees off guard
How This Will Complicate Plan Administration
- Payroll systems must be able to:
- Identify who earned $145,000+ last year
- Automatically route their catch-up contributions to Roth
- Recordkeepers must be aligned with your payroll data
- Manual processes (common in small businesses or in-house payroll environments) are especially vulnerable
- Plan documents may need to be amended to allow Roth contributions
This is the kind of rule that slips under the radar—until it breaks your payroll file or an employee files a complaint. It’s not just a tax issue. It’s an operational risk.
What HR Teams and Plan Sponsors Need to Do Now
1. Review Plan Design
- Does your 401(k) plan allow Roth contributions?
- If not, work with your recordkeeper and retirement plan advisor to amend the plan before 2026.
2. Coordinate with Payroll
- Ensure systems can identify eligible employees and correctly apply the Roth rule
- If you’re using in-house payroll, consult your provider or a third-party expert to avoid compliance errors
3. Partner with Your Recordkeeper
- Confirm Roth catch-up support is active and that your plan’s data feeds align if you have integration.
4. Prepare Employee Communications
- Notify impacted employees well before 2026
- Explain the change, the tax implications, and how their take-home pay may be affected
This rule may have been designed to raise government revenue—but it’s employers who will pay the price if they’re unprepared.
Whether you’re in HR, payroll, or compliance, the clock is ticking. 2026 might sound far off, but system upgrades, plan amendments, and employee education take time. Start now to avoid being caught off guard later.
Need help preparing your 401(k) plan for upcoming changes? We partner with employers, payroll teams, recordkeepers, and service providers to ensure your 401(k) plan remains compliant, efficient, and easy to manage—no matter what’s coming next.
Feeling Overwhelmed by These Changes?
You’re not alone. Between compliance rules, payroll coordination, and employee education, managing a 401(k) plan has never been more complex.
Let us lift the burden.
We work with HR teams, CFOs, and business owners to simplify 401(k) plan administration, deliver employee education, and stay ahead of regulatory changes—like the Roth-only catch-up contribution rule—so you don’t have to manage it all alone.
Contact us today to schedule a consultation and get the clarity (and support) your team deserves.
