SECURE 2.0 – IRS Delays Roth Catch-up Contribution Requirement to 2026

By: Drema Foster, PAFM

One of the key provisions of the SECURE 2.0 Act passed at the end of 2022 included a requirement that those earning over $145,000 in 2023 would have to make their 401(k) Catch-Up contributions as Roth (on an after-tax basis) beginning January 1, 2024. Those 50 years and older can contribute additional dollars to their 401(k) called Catch-Up contributions and historically, these contributions were made on a pre-tax basis. This change placed a burden on employers and plan administrators to ensure their plans had a Roth investment option and presented payroll challenges related to tracking those with income in 2023 who exceeded the threshold. On August 25, 2023, the Internal Revenue Service announced a two-year administrative transition period to implement this SECURE 2.0 provision. The new Roth catch-up contribution rule which initially had a January 1, 2024, effective date, and applies to 401(k), 403(b), and governmental 457(b) plans will now be effective January 1, 2026.

Employers and their service providers quickly concluded that implementing this new mandatory rule by 2024 would be a monumental undertaking. For example, the compensation calculation for determining the $145,000 limit for triggering the Roth catch-up rule was not something employers’ payroll departments or payroll providers were tracking for retirement plan administration. In addition, while many plans offer both catch-up contributions and Roth deferrals, plans that offered catch-up contributions but not Roth deferrals would need to add a Roth feature to allow these employees to make catch-up contributions in 2024. For employers who could not make these changes by January 1, 2024, many were considering removing catch-up contributions for all plan participants, including those making less than $145,000.

Based on overwhelming feedback from employers and the retirement community, the IRS announced a transition period for implementing this provision, providing employers and service providers breathing room to design and test payroll and compliance systems to support the Roth catch-up provision.

The IRS “Transition Period”
Employers now have until 2026 to implement the new Roth catch-up contribution rule in the retirement plans they sponsor. This means that all employees, regardless of prior-year wages, can make pretax catch-up contributions through December 31, 2025. In addition, plans that do not currently offer designated Roth contributions can delay adding this provision to their plan.

In addition to providing the administrative transition period for implementing the Roth catch-up rule, the IRS guidance clarified that plan participants can continue to make catch-up contributions beyond 2023, addressing unintended SECURE 2.0 language that appeared to remove catch-up contributions altogether after 2023.
The Treasury Department and IRS are working together on drafting additional guidance on implementing the Roth catch-up rule. They expect their guidance to include:

  • Allowing plan sponsors to treat pretax catch-up elections as an election to make catch-up contributions as Roth deferrals for employees who made more than $145,000 in the prior year.
  • Not aggregating wages for a participant who received wages from more than one participating employer in the plan in which the employee participates.
  • Not applying the $145,000 wage requirement to participants who do not receive Federal Insurance Contributions Act (FICA) wages from the employer sponsoring the plan. This could include those receiving self-employment income or a state or local government employee whose services are excluded from the applicable employment definition.

Providing the administrative delay until 2026 provides plan sponsors and their service providers with time to program systems and add plan provisions necessary to accurately and smoothly adopt this mandatory SECURE 2.0 provision. Plan sponsors should stay in close contact with their service providers over the next two years to make sure their plans are in compliance with the Roth catch-up provision by January 1, 2026.

Suttle & Stalnaker is ready to help you. If you would like more information on how this applies to you, contact Drema Foster, PAFM, at (304) 343-4126 or