A Playbook on IRS Final Regulations for Roth Catch-Up Contribution Requirements Under SECURE 2.0

The Wagner Law Group’s Jon Schultze and Barry Salkin explain the coming changes

On September 16, 2025, the Internal Revenue Service (IRS) issued final regulations providing guidance on changes made by the SECURE 2.0 Act of 2022 to the catch-up contribution provisions of the Internal Revenue Code (“Code”).

Under the “Roth catch-up contribution requirement,” catch-up contributions made by plan participants with FICA wages greater than $145,000 (as indexed beginning in 2026) in the preceding calendar year must be made as designated Roth catch-up contributions. The IRS issued proposed regulations in January 2025; the final regulations, as explained in the preamble, provide plans with more flexibility than the proposed regulations in certain respects.

The Roth catch-up contribution requirement is extremely complicated, and plan sponsors will need to carefully coordinate their compliance with their internal resources, payroll provider and the plan’s recordkeeper.

Applicable Employer Plans

The Roth catch-up contribution requirement applies to Code section 401(k) plans, 403(b) plans and eligible governmental 457(b) plans. The requirement does not apply to SEP arrangements, SIMPLE IRA plans, certain governmental 457(b) plans and tax-exempt 457(b) plans.

Applicability Dates

The applicability date of the final regulations depends on the plan:

• For plans that are not maintained pursuant to collective bargaining agreements and are not eligible governmental 457(b) plans, the final regulations are effective January 1, 2027.
• For plans maintained under one or more collective bargaining agreements, the final regulations apply with respect to contributions in taxable years beginning after the later of the first taxable year beginning after December 31, 2026, or the first taxable year that begins after the expiration date (without regard to any extension) of the last collective bargaining agreement related to the plan in effect on December 31, 2025.
• For governmental 457(b) plans, the final regulations apply with respect to contributions in the later of the first taxable year beginning after December 31, 2026, or the first taxable year beginning after the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2025.

The SECURE 2.0 Act originally made the Roth catch-up contribution requirement effective January 1, 2024, but the IRS provided a two-year “transition period” through the end of 2025. The IRS has not extended the transition period.

Thus, beginning on January 1, 2026, plans must apply a reasonable, good faith interpretation standard to implement the Roth catch-up contribution requirement until the applicable date by which the plan must comply with the final regulations. Compliance with the final regulations is presumably reasonable good faith compliance, and taking a position that the IRS rejected in the preamble in response to comments would likely be regarded by the IRS as not constituting a reasonable good faith interpretation.

Affected Participants

The Roth catch-up contribution requirement applies to participants:

• who are catch-up eligible, i.e., attain or have attained age 50 during a calendar year (not the plan year);
• whose FICA wages from the employer in the preceding calendar year exceeded $145,000, as indexed; and
• who make salary deferrals that exceed either the Code section 402(g) limit (the “salary deferral dollar limit”), as indexed ($23,500 for 2025), or a comparable limitation or restriction included in the terms of the plan.

The final regulations make several important clarifications regarding the determination of affected participants’ FICA wages.

• “FICA wages” are wages for purposes of Social Security taxation as reported in Box 3 of Form W-2. A participant who does not have FICA wages, such as a partner with self-employment income or an employee of an exempt state or local government, will not be subject to the Roth catch-up requirement.
• The FICA wage dollar amount is not pro-rated for an employee’s partial year of employment. Thus, for example, an employee who is hired on October 1 at a $200,000 salary will not be subject to the Roth catch-up requirement in the following year because the employee’s FICA wages will total only $50,000 for the calendar year.
• The relevant employer is the common law employer of the plan participant. The proposed regulations did not allow FICA wages paid by multiple members of the same controlled group or affiliated service group to be aggregated, even if the group uses a common paymaster (a common paymaster simplifies FICA withholding and reporting for compensation paid by multiple entities). In response to comments received by the IRS, the final regulations allow a plan to aggregate the FICA wages a participant receives from all employers in a controlled group and/or where a common paymaster is used.

Deemed Elections

A plan may provide that an election by a participant subject to the Roth catch-up contribution requirement to make catch-up contributions on a pre-tax basis will be treated as a deemed election to make catch-up contributions as designated Roth catch-up contributions.

If a plan will apply deemed elections, the plan document must provide for them and must permit participants to change their deemed elections. For example, a participant who has reached the salary deferral dollar limit with pre-tax dollars can elect to discontinue making catch-up contributions that would otherwise have to be made as Roth contributions. Additionally, a plan must cease to apply a deemed election if an employee is not subject to, or ceases to be subject to, the Roth catch-up requirement, such as when an employee’s FICA wages for the preceding year are determined not to exceed the Roth catch-up threshold or the employee changes employers during the year and remains covered under the same plan.

Catch-up contributions that were designated as Roth catch-up contributions pursuant to a deemed election do not need to be recharacterized as pre-tax catch-up contributions.

NEXT PAGE: When Requirement Applies; Coordination with Other Rules

When Requirement Applies

Different requirements apply to plans that use deemed Roth elections and plans that have separate elections.

For plans using deemed Roth elections, the final regulations provide two methods for determining when the deemed Roth election will be implemented:

• When pre-tax salary deferrals reach the salary deferral dollar limit. Because catch-up contributions are made after a participant reaches the salary deferral dollar limit, a plan can count designated Roth contributions made at any point during the year toward the Roth catch-up requirement even if the designated Roth contributions are made before the participant reaches the salary deferral dollar limit, i.e., before the participant’s salary deferrals are made as catch-up contributions. Thus, a participant subject to the Roth catch-up contribution requirement who makes pre-tax salary deferrals during a year that do not exceed the salary deferral dollar limit might not need to have catch-up contributions deemed to be Roth catch-up contributions instead of pre-tax catch-up contributions.
• When pre-tax and Roth salary deferrals reach the salary deferral dollar limit. This method, added to the final regulations in response to comments, allows a plan to apply the deemed election when a participant’s total salary deferrals reach the salary deferral dollar limit regardless of whether a portion of the salary deferrals were made as Roth contributions. The plan must permit a participant to make a new election that is different from the deemed election, which can allow such a participant to make additional pre-tax catch-up deferrals, taking into account the designated Roth contributions made earlier in the year, if they are less than the salary deferral dollar limit.

For plans using separate elections, i.e., that do not continue salary deferrals that exceed the salary deferral dollar limit and require participants to make a separate catch-up contribution election, a plan may apply a separate-election deemed Roth catch-up election to a participant’s salary deferrals that the participant elects to treat as catch-up contributions, including separate election plans that make catch-up contributions concurrent with salary deferral contributions. The plan must permit a participant to make a new election different from the deemed election.

One comment suggested that a plan should be permitted to require that all participants’ catch-up contributions be made as designated Roth contributions to avoid the administrative complexity. The final regulations do not include such a rule because, as the IRS explains, participants must be permitted to make pre-tax salary deferrals in order to designate pre-tax salary deferrals as designated Roth contributions.

Thus, participants who are not subject to the Roth catch-up contribution requirement would be unable to make pre-tax catch-up contributions as is required under the Code. However, a plan sponsor could remove a catch-up contribution provision from a plan.

Coordination with Other Rules

The IRS also explained how the final regulations relate to other catch-up contribution rules:

• Super catch-up contributions made by participants who attain age 60 to 63 during a calendar year are subject to the Roth catch-up contribution requirement.
• Special 15-year catch-up contributions to 403(b) plans are not subject to the Roth catch-up contribution requirement. If a participant is eligible to make special 15-year 403(b) plan catch-up contributions and age 50 catch-up contributions, the special 15-year 403(b) plan catch-up contributions may be pre-tax, and any age 50 catch-up contributions would be subject to the Roth catch-up contribution requirement.
• Special catch-up contributions to 457(b) plans during the last three years prior to retirement age are not subject to the Roth catch-up contribution requirement. If a participant is eligible to make special pre-retirement 457(b) plan catch-up contributions and age 50 catch-up contributions, the special pre-retirement 457(b) plan catch-up contributions may be pre-tax, and any age 50 catch-up contributions would be subject to the Roth catch-up contribution requirement.
• For dual qualified plans, i.e., plans that are qualified under both the Internal Revenue Code and the Puerto Rico Code, the final regulations treat the Roth catch-up contribution requirement for participants subject to the Puerto Rico Code as satisfied for taxable years that begin before the effective date of any future amendment to the Puerto Rico Code that provides for designated Roth contributions.

NEXT PAGE: Correcting Failures; Amendment Deadlines

Correcting Failures

The final regulations clarify the correction methods that may be used if participants subject to the Roth catch-up requirement make pre-tax salary deferrals that exceed an applicable limit. The final regulations describe several methods of correction.

• Form W-2 correction method. The excess pre-tax amount, adjusted for earnings, is transferred from the participant’s pre-tax deferral account to the participant’s designated Roth account, and the participant’s Form W-2 includes the transferred pre-tax deferral amount as a designated Roth contribution. This correction method cannot be used if the participant’s Form W-2 has already been filed or furnished to the participant, limiting its usefulness for corrections occurring after January 31; thus, if all or a portion of a participant’s pre-tax deferrals are recharacterized as catch-up contributions to correct an ADP test failure, it will generally be too late to use the Form W-2 correction method.
• In-plan Roth rollover correction method. The plan can directly roll over the excess pre-tax amount, adjusted for earnings, to the Participant’s designated Roth account, and the amount rolled over is reported on a Form 1099-R for the year of the correction. The contribution and earnings would be includible in the participant’s gross income in the year of the rollover. A plan can use this correction method even if the plan does not permit participant in-plan Roth rollover contributions because the rollover is made by the plan administrator to correct an operational failure and not by the participant.
• Distribution method. The plan can distribute the pre-tax catch-up contribution, adjusted for applicable earnings, that was required to be a designated Roth catch-up contribution as an excess contribution.

The advantage of both the Form W-2 correction method and the in-plan rollover correction method is that the incorrect catch-up contributions can remain in the plan. However, these correction methods can only be used if the plan provides for a deemed Roth catch-up election; otherwise, the incorrectly made catch-up contributions would have to be distributed from the plan.

If the amount transferred under the Form W-2 correction method or directly rolled over under the in-plan Roth rollover correction method is the first contribution to a participant’s designated Roth account, the five-taxable-year period begins with the taxable year for which the amount is includible in the participant’s gross income.

The deadline to make correction is the last day of the taxable year following the year for which the catch-up contribution was made. However, if the correction is made after the deadline to correct the type of salary deferral failure that occurred, the consequences of not making a timely correction still apply to the catch-up contributions. The types of failures that may occur generally are:

• If a pre-tax salary deferral is a catch-up contribution because it exceeds the salary deferral contribution limit, the deadline to make a correction is April 15 of the calendar year following the calendar year in which the salary deferral was made.
• If a pre-tax salary deferral is a catch-up contribution because the participant’s annual additions would otherwise exceed the Code section 415 limit, the deadline to make a correction is the deadline under the Code section 415 regulations for allocating amounts for the limitation year for which the salary deferral was made.
• If a pre-tax salary deferral is a catch-up contribution due to an ADP test failure, the deadline to make a correction is the date that is 2-1/2 months (six months for a plan that includes an eligible automatic contribution arrangement) after the close of the plan year for which the excess contribution was made.  This deadline would also apply to correct a pre-tax catch-up contribution that is a catch-up contribution because it exceeds an employer-provided plan limit.

Thus, a plan may have different correction deadlines depending on each participant’s particular situation, but the same correction method is required for similarly situated individuals.

Correction is not required under two circumstances:

• The amount of the pre-tax salary deferrals that should have been designated Roth catch-up contributions does not exceed $250.
• The employee’s FICA wages are determined to exceed the applicable threshold on account of adjustments made after the applicable correction deadline.

Amendment Deadlines

Plan sponsors will need to amend their plan documents to reflect the manner in which the final regulations were implemented. The deadlines to adopt amendments for these changes depends on the plan:

• The amendment deadline is generally December 31, 2026.
• Plans maintained pursuant to one or more collective-bargaining agreements must be amended by December 31, 2028.
• Governmental plans must generally be amended by December 31, 2029.

The final regulations also clarify that an amendment that applies mid-year is not a prohibited change to a safe harbor plan as described in Notice 2016-16.

AUTHORS’ NOTE: This Article addresses issues under the final regulations that will affect a majority of plans. We have not explained every issue under the final regulations which, in many cases, apply to a smaller group of plans. Plan sponsors should seek legal advice regarding their good faith compliance with the new requirements. The Wagner Law Group would be happy to provide guidance on these requirements.

EDITOR’S NOTE: This article is reprinted with permission of The Wagner Law Group.

SEE ALSO:

• New SPARK Guide Helps DC Plans Navigate SECURE 2.0 Roth Catch-Up Rules
• IRS, Treasury Dept. Release Final Regulation for Roth Catch-Up Contributions