Find helpful information on the new 2026 requirement for high income earners to make Roth catch-up contributions. Discover questions for aligning payroll, recordkeeping, and plan operations to help ensure a smooth transition.
One of the most discussed changes from the SECURE 2.0 Act is the new rule requiring catch-up contributions to be treated as Roth for certain high-income earners (HIEs). Because some parts of the provision are quite detailed, coordination across payroll, recordkeeping, and (when applicable) TPA processes will be essential. Many plan sponsors may rely on their financial professionals to help ensure these providers are aligned. The good news is that with proper clarity and preparation, this transition can be manageable and may even lead to greater consistency in long-term plan administration.
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If a participant’s prior year Social Security (FICA) wages from the plan sponsor exceed the indexed limit (more than $150,000 for 2025 FICA wages that determine 2026 HIE status), age 50+ catch-up contributions made in 401(k), 403(b), or governmental 457(b) plans must be designated as Roth. If a plan doesn’t currently offer a Roth option, it cannot accept catch-up contributions from HIEs.
- Changed: Catch-up contributions for HIEs (prior year’s Box 3 Social Security wages above the indexed limit) must be Roth beginning in the 2026 tax year. Plans may add deemed Roth election language so that the plan automatically treats those catch-ups as Roth contributions, while still allowing participants to change their elections.
- Unchanged: Participants can still make pretax regular deferrals up to the indexed 402(g) limit ($24,500 in 2026); only the catch-up contribution portion is required to be Roth for HIEs.
Most plans, except governmental or collectively bargained plans, must adopt amendments by December 31, 2026. These amendments must reflect the SECURE 2.0 changes, including the Roth catch-up structure and any optional deemed Roth election language.
1. Determining who is subject to mandatory Roth catch-up treatment
The final regulations confirm that Form W-2, Box 3 (Social Security wages), is used to determine who is subject to the Roth catch-up contribution mandate. Plans may choose (not required) to aggregate wages across related employers (e.g., controlled group members or common paymaster), but this must be defined in the plan document and will affect payroll data requirements.
Questions for:
- Payroll: How will HIE status be flagged in the system, and when will that flag be available for update each year?
- Recordkeeper: If the plan aggregates wages across related employers, what plan language and payroll data fields do you need?
- TPA (if applicable): How will you align HIE determinations with payroll and the recordkeeper, especially if the plan aggregates wages across related employers or relies on specific file indicators to identify HIEs?
2. Getting payroll and recordkeeping systems aligned
Operational success hinges on clear coding. Payroll must separate regular deferrals from catch-up contributions and ensure that catch-ups for HIEs are submitted as Roth. Many providers are using standard indicators and conducting pre-production testing to catch coding errors before the system goes live.
A common issue may occur when payroll sends a pretax catch-up contribution to the recordkeeper for an HIE who must make Roth catch-ups. The final regulations outline correction methods for handling miscoded contributions. Each provider may support different processes, so it’s important to confirm how errors will be corrected operationally.
Questions for:
- Payroll in coordination with recordkeeper: Which file fields/flags identify regular versus catch-up contributions and Roth versus pretax?
- Recordkeeper: If payroll sends a miscoded source (e.g., pretax catch-up for an HIE), will you reject it, convert it, or hold it until clarified? What tax reporting is required in each scenario? What pre-production testing cycles will be run with payroll to verify that eligibility flags and source mapping are functioning correctly?
- TPA (if applicable): How will you verify that payroll and recordkeeper file coding of catch-up versus regular deferrals and Roth versus pretax sources is consistent with the plan document and operational procedures?
3. Updating plan design and adopting Roth and optional deemed elections
If the plan currently allows catch-up contributions but doesn’t offer Roth, HIEs will not be able to make catch-ups until Roth is added. The final regulations confirm that plans can add an optional deemed Roth election language that automatically treats catch-up contributions as Roth contributions for HIEs once they reach the elective deferral limit. This feature can help simplify administration, reduce refund risk, and align correction options.
Deemed elections are permitted so long as participants have an effective opportunity to make a different election. Participants should be made aware when the deemed Roth treatment applies and when it stops if the individual is no longer considered an HIE.
Questions for:
- Legal/Financial professional: Will the SECURE 2.0 amendment package include model language for a deemed Roth election? Are there any nondiscrimination concerns if the plan adds Roth now or when it offers the super catch-up contributions for those age 60–63?
- Recordkeeper: Can you support a deemed Roth catch-up contribution, and do you require any specific language or plan setup elements?
- TPA (if applicable): Will you assist with required SECURE 2.0 amendments, including adding Roth or deemed Roth election language, and help ensure that plan document updates align with payroll and recordkeeper file requirements?
4. Handling tax reporting and corrections
Roth catch-up contributions are taxable when made, which means payroll must withhold taxes correctly and report the contributions on Form W-2. If an error occurs (i.e., a pretax catch-up is submitted for an HIE), the final regulations provide two main correction paths.
- Correcting Form W-2 and adjusting taxation to the correct tax year
- Using an in-plan Roth rollover, which is reported on Form 1099-R.
Providers, payroll and recordkeepers, can differ in the methods they support, the way they initiate corrections, and the time required to complete them. A $250 de minimis exception exists for minor mismatches in certain contexts. However, practices may vary, and some recordkeepers may choose not to apply this exception.
Plan sponsors are encouraged to coordinate an annual reconciliation process with recordkeepers and payroll providers to verify Roth catch-up contributions and tax reporting before year-end.
Anticipated common errors:
Plan sponsors and providers (payroll and recordkeeper) may encounter the following issues during early implementation:
- Miscoded catch-up contributions (e.g., pretax catch-up submitted for an HIE who must make Roth catch-ups).
- Incorrect or missing HIE indicators in payroll files.
- Mismatches between payroll and recordkeeper source codes, especially during the first year of setup.
- Late or incomplete wage data affecting HIE determinations.
- Tax reporting discrepancies, such as Roth catch-up contributions not flowing correctly to Form W-2.
- Misalignment between provider correction workflows, leading to delays in W-2c or 1099-R processing.
These issues are reasons why upfront coordination and an agreed-upon correction workflow are important.
Questions for:
- Payroll: How will payroll tax withholding be handled for Roth catch-up contributions? How will corrected wage information be incorporated into payroll reporting if a correction is required?
- Recordkeeper: Which correction methods do you support, and who is responsible for issuing corrected tax forms? What year-end reconciliation reports will you provide to confirm accurate Roth catch-up reporting?
- TPA (if applicable): How will you coordinate correction workflows between payroll and the recordkeeper, particularly for miscoded catch-up sources or Roth versus pretax mismatches? What is the process for supporting or initiating Form W-2c or 1099-R corrections, including the expected turnaround times? Will you assist with year-end reconciliation or help validate Roth catch-up wage reporting before tax forms are finalized?
5. Managing participant elections and communications
Sponsors must decide whether their plan will use a single-election structure or a dual-election structure. A single-election structure automatically moves contributions into catch-up status once the 402(g) deferral limit is reached. A dual-election structure requires separate elections for regular and catch-up contributions. When combined with a deemed Roth catch-up approach, single election structures may reduce errors. If using dual elections, the payroll provider must understand how to apply each election at the source level.
Participant experience: What high-income earners, HIEs, may notice
HIEs may see a change in take home pay when their catch-up contributions shift from pretax to Roth. Those who have historically made pretax catch-up contributions may ask why their paychecks look different, how Roth catch-up treatment affects their taxes, and whether they need to update their elections. Clear, early communication can help avoid confusion and remind participants that only their catch-up contributions, not their regular pretax contributions up to the 402(g) limit, are affected.
If a miscoded pretax catch-up is later corrected to a Roth, participants may also receive corrected tax forms, which can influence year-end tax reporting. Working with your recordkeeper to provide participant-ready materials can help make these conversations easier and help ensure messages are accurate and consistent.
Questions for:
- Payroll: How will payroll systems apply a single-election or dual-election structure at the source level?
- Recordkeeper: How will catch-up sources and Roth catch-up sources appear on participant statements and online accounts? Can you supply participant communication templates that explain how Roth catch-up affects paychecks and how to change elections?
- TPA (if applicable): How will you support the application of single-election or dual-election structures in day-to-day operations, and what participant questions will you help address?
- Communications/HR: How and when should HIEs be notified of Roth catch-up requirements and changes to elections?
6. Governance and “good faith” in 2026
Final regulations confirm that most plans must implement the mandatory Roth catch-up rule beginning in 2026 using a reasonable and good-faith interpretation of the statute. Full compliance with the detailed regulatory requirements generally begins in 2027. Governmental and collectively bargained plans may have later applicability dates.
Sponsors should document their 2026 process, including how eligibility is determined, how files are coded, how corrections are handled, and the practices for participant communication. This documentation may be useful if regulators request evidence that the plan operated in good faith during the transition year.
What to work on now:
- Decide on wage aggregation. Will you aggregate prior year wages across related employers/common paymaster? If yes, align the plan document language and the payroll file layout, including required data fields.
- Choose your contribution election model. Single vs. dual elections and whether to add deemed Roth election language to your plan.
- Lock down file specifications. Confirm source codes, Roth/catch-up flags, and HIE indicators; schedule pre-production testing with payroll and the recordkeeper.
- Draft amendments. Determine which SECURE 2.0 amendments need to be added to plan documents (Roth feature if needed; deemed election language if used) ahead of the Dec. 31, 2026, plan signing deadline.
- Determine correction workflows. Document who owns Form W-2/1099-R correction steps, in-plan Roth rollover procedures, and the escalation path if miscoding occurs.
- Communications. Prepare targeted templates, FAQs, and an annual notice explaining the Roth catch-up requirement for HIEs and how to change elections. Consider working with the recordkeeper on participant communications. Many recordkeepers provide clear templates and educational materials that can help ensure messages are accurate, consistent, and easier for participants to understand, and reduce the effort required of sponsors.
Quick roles map
- Plan sponsor: Determine HIE status using W-2 Box 3 prior year Social Security wages. Approve, adopt, and sign required SECURE 2.0 plan amendments, including adding a Roth feature if not already offered and any deemed election language.
- Payroll provider: Apply the plan sponsor’s determination of HIE status and accurately code regular, catch-up, Roth, and pretax sources. Ensure correct tax withholding and accurate payroll reporting for Roth catch-up contributions, including corrections when needed. Send complete, timely, and correctly coded payroll files to the recordkeeper for each pay period.
- Recordkeeper: Support accurate source mapping and apply the plan’s setup so that regular, catch-up, and Roth catch-up contributions are coded and processed correctly. Coordinate with payroll to identify and correct any miscoded contributions and provide the workflows needed for Form W-2 or in-plan Roth rollovers (Form 1099-R corrections). Implement all sponsor-approved plan amendments by December 31, 2026. Review the plan’s design for any nondiscrimination implications and communicate any required updates to the sponsor.
- TPA (if applicable): Support HIE determinations, coordinate operational setup with payroll and the recordkeeper, assist with corrections and year-end reconciliations, and prepare or review required SECURE 2.0 plan amendments to help ensure the document reflects the plan’s Roth and catch-up provisions.
The new Roth catch-up requirement touches nearly every operational function that supports a retirement plan. Sponsors and their financial professionals, payroll providers, and recordkeepers must work together to identify HIEs, code files correctly, manage elections and communications, and apply correction rules when needed. Because 2026 is treated as a good-faith transition year, sponsors can use this time to refine eligibility processes, file coding, and correction workflows so that operations run smoothly when full compliance is required in 2027. By clarifying responsibilities and establishing consistent data flows now, sponsors can reduce the risk of costly errors, protect participants from confusing tax consequences, and ensure a smoother transition before the full applicability of the final regulations in 2027.
