In January, the Department of the Treasury (“Treasury”) and Internal Revenue Service (IRS) issued proposed regulations on the catch-up contribution provisions under the SECURE 2.0 Act of 2022 (“SECURE 2.0”). While the proposed regulations address both the new “super catch-up” contributions available to participants attaining age 60 to 63 and the mandatory Roth catch-up for certain high-paid employees, in this article we are focusing on the mandatory Roth catch-up requirement under Section 603 of SECURE 2.0. The proposed regulations confirm what we already knew – the mandatory Roth catch-up provision is complex and most plan sponsors will have work to do to prepare for the delayed January 1, 2026 effective date.

What does the new mandatory Roth catch-up provision require?

For plan years beginning on or after January 1, 2026, any 401(k), 403(b), or governmental 457(b) plan that allow participants who are age 50 or older during the plan year to make catch-up contributions, must require that certain high-paid participants, as described below (“hgh-paid participants”), be limited to Roth catch-up contributions only. If a plan currently permits only pre-tax catch-up, it must either add Roth catch-up for all participants or limit pre-tax catch-up contributions to only non-high paid participants.

Who is a high-paid participant subject to the mandatory Roth catch-up provisions?

Any participant who had more than $145,000 (as adjusted annually for cost-of-living) of FICA wages in the prior year from their common law employer, that participates in the plan, is considered a high-paid participant who is subject to the mandatory Roth catch-up requirement with respect to pay from that employer. FICA wages are defined by reference to social security taxes and the $145,000 limit is not adjusted or prorated for mid-year hires. This dollar limit and measurement of wages differs from those used to determine whether an employee is a “highly compensated employee” under IRS rules for other plan purposes, such as nondiscrimination testing, so this is a new bucket of pay to track for plan purposes.

There are also several other nuances to this rule, as follows:

• If a participant receives FICA wages from more than one entity in a controlled group[1], those wages are not aggregated to determine whether the participant has FICA wages in excess of $145,000 (as adjusted). For example, if two related companies, Company A and Company B, each pay $100,000 of FICA wages to Employee A in 2025, then Employee A is not a high-paid participant in 2026.
• If your company uses a common paymaster arrangement, then you are required to determine which entity or entities are a participant’s common law employer and look at whether any such entity has paid the participant more than $145,000 in FICA wages in the preceding year.
• If you have entities in your controlled group that do not participate in your plan, then you can disregard those entities in determining whether an employee is a high-paid participant subject to mandatory Roth catch-up.

What if a high-paid participant transfers employment or has wages from multiple related entities? Does the mandatory Roth catch-up requirement apply with respect to all of the employee’s wages?

The answer is “not necessarily.” Only contributions taken from the wages of the common-law employer that caused the participant to be considered a high-paid participant are subject to the mandatory Roth catch-up treatment. This proposed rule is best illustrated by the following examples:

• Example 1: Company A and Company B, two related companies, are both participating employers in a 401(k) Plan. In 2025, Company A paid Employee $175,000 of FICA wages and Company B paid Employee $0 of FICA wages. On 1/1/2026 Employee transfers to employment with Company B. Even though Employee is considered a high-paid participant with respect to the 401(k) Plan in 2026 due to receiving more than $145,000 of FICA wages from Company A in 2025, Employee is not subject to mandatory Roth catch-up with respect to her wages from Company B in 2026 because she did not receive more than $145,000 of FICA wages from Company B in 2025.
• Example 2: Company A and Company B, two related companies, are both participating employers in a 401(k) Plan. Company A paid Employee $175,000 of FICA wages in 2025 and Company B paid Employee $75,000 of FICA wages in 2025. In 2026, Employee continues to split time between Company A and Company B. In 2026, to the extent catch-up contributions are deducted from compensation paid by Company A, those catch-up contributions must be made on a Roth basis. To the extent catch-up contributions are deducted from compensation paid Company B, those catch-up contributions are eligible for pre-tax deduction.

How do the mandatory Roth contribution requirements work if my plan has a spillover catch-up contribution design?

All plans must give high-paid participants the opportunity to opt out of catch-up contributions. For plans that permit participants to make a separate catch-up contribution election, an opt-out is easy and already built into your administrative process. For plans that automatically “spill” contributions made by eligible employees who have reached their maximum regular pre-tax and Roth contributions to catch-up contributions, we think you can meet this requirement by allowing a participant to change or cancel his or her deferral election at any time. For plans that also have spillover to a non-qualified deferred compensation plan (such that, for example, participant contribution elections must be locked in prior to the start of the year), this gets trickier and is something where you would want to work with your recordkeeper to identify a solution.

Can I count a high-paid participant’s regular Roth contributions toward the Roth Catch-up Requirement?

Yes, under the proposed regulations, a plan can take into account Roth contributions that a high-paid participant made prior to reaching the applicable deferral limit ($23,500 in 2025), for purposes of determining whether the mandatory Roth contribution requirement is satisfied. Mandatory Roth catch-up is only required to the extent that the high-paid participant has not previously made Roth contributions during the plan year equal to the applicable catch-up limit (e.g., $7,500 in 2025, before application of the super catch-up limit).

Can we still recharacterize regular pre-tax or Roth contributions as catch-up contributions in order to pass average deferral percentage (ADP) nondiscrimination testing?

Yes, the proposed regulations allow a plan to recharacterize regular pre-tax or Roth contributions as Roth catch-up contributions, subject to the applicable deadline below:

• For plans that include an eligible automatic contribution arrangement (EACA) safe harbor, the plan has six months after the close of the plan year to recharacterize regular contributions as Roth catch-up contributions to pass a failed ADP test; or
• For plans that do not include an EACA, the plan has two and one-half months after the close of the plan year to recharacterize regular contributions as Roth catch-up contributions to pass a failed ADP test.

If regular pre-tax contributions are recharacterized as Roth catch-up after the year is over (and within the applicable timeframe described above), then those recharacterized contributions must either be reported on the participant’s Form W-2 as Roth contributions or the plan must transfer the pre-tax dollars to the participant’s Roth account via an in-plan Roth conversion.

What should we do now to get ready for the new mandatory Roth catch-up requirement?

If you have not already done so, you should start a conversation with your plan recordkeeper and your payroll team regarding this new requirement, which will take effect on January 1, 2026 (or if later, the first day of your plan year beginning in 2026). This is particularly important if you have employees that split their time between multiple related entities, employees that transfer employment from one related employer to another during the year, if you use a common paymaster arrangement, or if your retirement plan utilizes a spillover design. Plan sponsors of plans that do not include an EACA may also wish to consider whether to implement an EACA in order to allow for more time to complete year-end nondiscrimination testing and recharacterize regular contributions as Roth catch-up to pass an otherwise failed ADP test. Plan sponsors should also begin considering how to communicate this change to participants, especially because this change directly impacts employees’ tax planning for 2026 and beyond. Keep in mind, however, that these are just proposed, not final, regulations, so further changes may be forthcoming in the final regulations.

[1] For ease of discussion, we will refer to a group of companies that is a controlled group, group of related companies, or affiliated service group as a “controlled group”.