Recent changes to retirement plan rules are affecting how some people save for retirement, especially those making catch‑up contributions later in their careers. Understanding how the Roth catch‑up requirement works can help avoid confusion and support better planning decisions.
One of the most impactful updates involving catch‑up contributions is a new requirement that applies to certain higher‑earning individuals. While the rule itself is fairly straightforward, the way it applies can raise questions for employees, business owners, and plan sponsors alike.
We will explain what changed, who the Roth catch‑up rule applies to, and how to think about it from a practical planning perspective, based on how the Kassouf Retirement Plan Services team has educated clients.
What are catch‑up contributions?
Catch‑up contributions are additional retirement plan contributions available to individuals age 50 and older. They are designed to help people increase retirement savings later in their careers, particularly as retirement approaches.
For 2026, the IRS allows individuals to defer up to $24,500 into a 401(k) plan through regular elective deferrals. Participants age 50 and older may contribute an additional $8,000 as a standard catch‑up contribution.
Participants ages 60 through 63 are eligible for an enhanced catch‑up contribution of $11,250, creating a temporary window to accelerate savings in the years immediately before retirement.
Historically, participants could choose whether these catch‑up contributions were made on a pre‑tax or Roth basis, assuming their plan allowed both options. Beginning in 2026, that flexibility changes for some individuals.
What changed in 2026?
Under the SECURE 2.0 Act, certain individuals must now make their catch‑up contributions as Roth (after‑tax) contributions.
This requirement applies when a participant’s prior‑year Social Security wages, shown in Box 3 of Form W‑2, exceed the applicable income threshold. The IRS uses a look‑back approach, meaning wages from the previous year determine how catch‑up contributions must be treated in the current year.
Importantly, this rule applies only to the catch‑up portion of contributions. Regular deferrals are not affected.
This distinction was emphasized during a recent Kassouf Retirement Plan Services educational event for plan sponsors, particularly in discussions around payroll coordination and participant communication.
Who does the Roth catch‑up rule apply to?
The Roth catch‑up requirement applies when all three of the following are true:
- The participant is age 50 or older
- The participant is eligible to make catch‑up contributions under the plan
- The participant’s prior‑year Social Security wages exceed the applicable threshold
Because the Roth catch‑up requirement is based on prior‑year income, eligibility can change from year to year.
For example, consider someone who is age 52 and earned $160,000 in Social Security wages in 2025. Because that income exceeds the threshold, any catch‑up contributions they make in 2026 must be Roth contributions. If their income later drops below the threshold, that requirement does not automatically follow them forever.
Now consider a different year. If that same individual earns $135,000 in Social Security wages in 2026, they would not be subject to the Roth catch‑up requirement for 2027, assuming the plan allows pre‑tax catch‑up contributions. In other words, the rule looks back one year at a time, and eligibility can shift as income changes.
This is why reviewing prior‑year W‑2 information and understanding how income fluctuations affect retirement contributions is crucial.
Why Roth, and why now?
Roth contributions are taxed when the contribution is made, but qualified distributions later are generally tax‑free. From a policy standpoint, this rule shifts when taxes are paid, moving taxation earlier rather than later.
When planning, this creates both adjustment and opportunity:
- Some individuals may notice a short‑term impact to take‑home pay
- Long‑term retirement savings may benefit from tax‑free growth
- Participants nearing retirement may want to revisit broader tax and cash‑flow strategies
This change does not make Roth contributions universally better or worse. It simply changes the timing of taxation, which should be evaluated in the context of an individual’s overall financial picture.
What does this mean for employers and plan sponsors?
For employers and plan sponsors, the Roth catch‑up requirement is less about investment philosophy and more about administration and communication.
Key considerations include:
- Payroll systems must correctly identify affected participants using prior‑year W‑2 Box 3 wages
- Catch‑up contributions must be directed to Roth sources when required
- Plan documents and administrative processes must support Roth catch‑up contributions
- Participants need clear, plain‑language explanations of what changed and why
The Kassouf Retirement Plan Services team emphasizes that coordination among payroll providers, recordkeepers, and plan administrators is essential to avoid errors and correction issues.
What should individuals do next?
If you believe this rule may apply to you:
- Review your prior‑year Form W‑2, specifically Box 3
- Confirm whether your retirement plan offers Roth contributions
- Consider how Roth catch‑up contributions fit into your broader retirement and tax strategy
- Ask questions early rather than waiting until year‑end
Even for individuals not currently affected, this change is a reminder that retirement plan rules continue to evolve, and periodic reviews are valuable.
Final thoughts
The Roth catch‑up requirement is just one of many SECURE 2.0 provisions taking effect in stages. While the rule itself is specific, its impact touches payroll, plan administration, and personal financial planning.
As the Kassouf Retirement Plan Services team shared during their workshop, proactive communication and thoughtful planning help ensure retirement plans continue to support both participants and employers effectively.
If you have questions about how this change applies to your retirement plan or personal situation, your Kassouf team is here to help.