New SPARK Guide Helps DC Plans Navigate SECURE 2.0 Roth Catch-Up Rules
There’s a lot of confusion about the final regulations issued by the IRS and the Treasury Department on Monday regarding Roth catch-up contributions by select high-income participants who have reached age 50—and the SPARK Institute wants to help.
Today the SPARK Institute published its Industry Best Practices & Procedures for Roth Catch-Up Contributions (Version 1.0), a comprehensive guide aligned with the final regulations issued on Sept. 15, 2025, to assist defined contribution plan sponsors in complying with Section 603 of the SECURE 2.0 Act, effective in 2027, with a reasonable, good faith interpretation required for 2026.
“Missteps in implementing the Roth catch-up rules could lead to compliance issues, participant confusion, and tax reporting errors,” said Tim Rouse, Executive Director of the SPARK Institute. “Our guidance provides a clear framework to align service providers and prevent costly mistakes.”
Section 603 requires that age-based catch-up contributions for participants with prior-year FICA wages exceeding $145,000 (adjusted for inflation) from the plan sponsor be treated as Roth contributions. This mandate necessitates seamless coordination among plan sponsors, payroll providers, recordkeepers, and third-party administrators (TPAs) to ensure compliance and operational efficiency.
“Plan sponsors must act now to confirm their payroll systems are ready,” said Eric Henon, Executive Director of the Coalition for Payroll Excellence. “Without proactive coordination, many plans risk non-compliance as systems may not automatically support these new requirements.”
Key Best Practices for Compliance
The SPARK Institute’s guidance outlines critical steps for plan sponsors and service providers:
• Roth Catch-Up Population (Roth-CUP) Identification: Payroll providers should generate reports identifying employees with prior-year FICA wages exceeding $145,000, using a standardized Yes/No indicator to protect sensitive data.
• Deemed Roth Catch-Up Election: Plan sponsors are encouraged to adopt the Deemed Election—a prerequisite for using IRS-approved correction methods—automatically converting pre-tax catch-up contributions to Roth once the IRS 402(g) limit is reached, with participants retaining an effective opportunity to opt out by stopping or changing deferrals.
• Contribution Monitoring: Payroll providers must track pre-tax and Roth deferrals separately and ensure automatic conversion to Roth for Roth-CUP participants when necessary.
• Data Exchange: A standardized data file format ensures timely and accurate transmission of Roth-CUP indicators between payroll providers, plan sponsors, and recordkeepers/TPAs.
• Error Handling: Errors identified during compliance testing should be corrected using IRS-approved methods, with recordkeepers and TPAs prioritizing Form 1099-R for Roth conversions, and Form W-2 corrections used before year-end with coordinated efforts among providers, adhering to deadlines to avoid tax or compliance issues.
• Participant Communications: Recordkeepers and TPAs should update plan documents and notices, with flexibility for targeted communications coordinated across providers.
5 Critical Questions for Plan Sponsors to Ask Payroll Providers
To ensure readiness, plan sponsors should confirm the following with their payroll providers:
1. Can your system identify employees with prior-year FICA wages exceeding $145,000 (indexed for inflation)?
• This identifies participants subject to Roth catch-up rules.
2. Can you provide a Roth-CUP identification file by the first payroll of each year?
• Timely data sharing ensures coordination across providers.
3. Will your system automatically switch pre-tax catch-up contributions to Roth once the IRS 402(g) limit is reached? Will you be tracking the limit on a pre-tax or combined basis?
• This supports compliance with the Deemed Election.
4. Does your system revert to the participant’s original deferral election on January 1 each year?
• This prevents unintended contribution changes.
5. Do you support SPARK’s standardized file format for Roth-CUP data exchange?
• A uniform format simplifies integration and reduces errors.
If a payroll provider cannot meet these requirements, SPARK recommends immediate collaboration with recordkeepers to develop a compliance plan and address potential gaps.
Why It Matters
“While payroll providers and recordkeepers handle the operational details, plan sponsors bear ultimate responsibility for compliance,” Rouse said. “This guidance empowers employers to align their service providers and avoid fiduciary risks.”
The SPARK Industry Best Practices & Procedures for Roth Catch-Up Contributions is publicly available and includes detailed recommendations on file formats, error correction methods, and handling plan design variations, such as spillover versus separate election methods.
Access the full nine-page best practices guide here: Industry Best Practices & Procedures for Roth Catch-Up Contributions (Version 1.0)
EDITOR’S NOTE: This article has been updated to correct broken links to the guide.
SEE ALSO:
• IRS, Treasury Dept. Release Final Regulation for Roth Catch-Up Contributions
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
