Effective January 1, 2026: Roth catch-up contributions for high income earners
What is the mandate?
Starting January 1, 2026, participants earning more than $145,000 (indexed) in FICA wages in the prior year must make all catch-up contributions as Roth contributions.
FICA wages
- FICA wages include salary, tips, bonuses, commissions, and taxable fringe benefits (Box 3 on W-2).
- FICA wages would be defined by reference to Social Security taxes and considered in the same year that they are considered for Social Security tax purposes.
- Wage calculation is not prorated or aggregated across multiple employers. Eligibility is only met upon exceeding the $145,000 (indexed) threshold with the current employer.
Roth contributions
- Section 603 applies to age 50+ and the enhanced age 60-63 catch-up contribution types1
- All Roth contributions made during the year count towards the Roth catch-up limit. This will be regardless of when they were contributed for purposes of determining if the mandatory Roth deferrals are satisfied.
- Employers can deem a participant's pre-tax catch-up election to be a Roth catch-up election. Although they must provide the participant with an effective opportunity to stop catch-up contributions.
Correction method
- Distribute pretax contributions and earnings: Employers may return the contribution as an excess deferral to the plan. (Employers must return excess deferrals in the scenario where Roth is not available to the plan).
- Correct W-2: Employers may correct the W-2 for the same tax year and must be corrected before issuance to the employee.
- In-plan Roth conversion: Corrections may be made by April 15th via in-plan Roth conversion. A 1099-R will be issued for the tax year in which the conversion was processed.
Exclusions and impact
- FICA Participation: An individual who did not have any FICA wages from the Employer from the prior calendar year would not be subject to the mandatory Roth catch-up and can maintain Pre-Tax Salary Contribution catch-up.
- Optional Roth Offering: Employers are not mandated to offer Roth. If Roth is not offered, those participants earning greater than $145,000 (indexed) in the previous year cannot make any catch-up contributions.
Participants’ frequently asked questions
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Beginning in 2026, if participants who meet all of the following criteria must make age-based catch-up contributions as Roth (after-tax) contributions:
- Are age 50 or older
- Plan to make age 50 catch-up contributions
- Earned more than $145,000 in W-2 FICA wages in 2025 from this employer. Participants can find this information in Box 3 of their W-2 form
Roth catch-up contributions are after-tax contributions that participants make to their retirement plan once they reach the age of 50 or older. These contributions allow them to save more than the standard annual limit, helping them boost their retirement savings as they approach retirement.
Unlike traditional pre-tax contributions:
- Participants pay the taxes upfront
Their qualified withdrawals in retirement are tax-free, including earnings provided:
- They’ve held the account for at least five years
- They’re at least 59½ years old.
View this year’s IRS limits.
Participants will be impacted if they meet the following criteria:
- will be aged 50 or older in 2026
- earn more than $145,000 in FICA wages in 2025 from their current employer
If your plan supports Roth contributions, participants’ catch-up contributions may be automatically treated as Roth, even if they originally elected pre-tax. This is called a “deemed Roth election.”
- These contributions and earnings will be reported as taxable income, and participants will receive a Form 1099-R.
- If your plan does not support Roth contributions, participants won’t be able to make catch-up contributions at all.
Important: If participants mistakenly make pre-tax catch-up contributions and a Roth correction is required later, all associated earnings will be subject to taxation. However, if participants elect Roth contributions during the calendar year, their earnings can grow tax-free, provided they meet the qualified distribution requirements.
Use this formula:
Deferral catch-up % = (Annual Catch-Up Goal ÷ Annual Compensation) × 100
Example: If a participant earns $150,000 and wants to contribute the full catch-up amount of $7,500:
- Deferral % = (7,500 ÷ 150,000) × 100 = 5%
- The participant would set their Roth catch-up deferral to 5% of their pay.
No, the timing of participants’ Roth catch-up contributions within the year does not matter. As long as their contributions exceed the standard 402(g) elective deferral limit and they meet the eligibility criteria (age 50+ and prior-year wages over $145,000), those contributions will count toward satisfying the Roth catch-up mandate.
Not immediately, but we recommend that they take the following actions in January 2026:
- Review their current deferral elections
- Watch for future communications
- Review Box 3 of their W-2 by the end of January 2026
- Prepare to make updates at the beginning of 2026
[1] Under current proposed regulations, a participant who is eligible for Special 457(b) and 403(b) catch-ups may make such contributions on a pre-tax or Roth basis and are not required to make such contributions as Roth. Additionally, Section 603 has made changes to the Catch-Up coordination rules that may allow participants to utilize both Special Catch-Ups Contributions and Age 50+ Catch-Ups Contributions in the same year under certain circumstances. However, final guidance on this aspect of Section 603 is needed.
This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.
FOR FINANCIAL PROFESSIONAL, CONSULTANT AND PLAN SPONSOR USE – NOT FOR DISTRIBUTION TO THE PUBLIC
