On September 16, 2025, the Internal Revenue Service (IRS) published final rules on the Roth catch-up contribution requirements of SECURE 2.0 Act (Final Rules). Many of the requirements from the proposed rules are retained, although there have been some changes to try and ease plan administrative issues.
Background on Roth Catch-Up Contribution Changes
Section 603 of the SECURE 2.0 Act requires catch-up contributions to be made as after-tax Roth contributions if the contributing employee received wages in the prior calendar year that exceed $145,000 (and as adjusted for inflation). The definition of wages is defined as FICA wages. All eligible participants must have the opportunity to elect Roth catch-up contributions (and Roth cannot be limited to just those employees earning above the $145,000 wage limit as adjusted).
The requirements apply to 401(k), 403(b), and governmental 457(b) plans. The Roth catch-up requirements were effective beginning January 1, 2024, but the IRS implemented a two-year administrative transition period in Notice 2023-62. The IRS issued proposed regulations on January 13, 2025, and revised portions of those rules in the Final Rules.
The Final Rules are applicable in tax years beginning after December 31, 2026. That means the Roth catch-up contribution rules will be enforced for 2026, although compliance does not necessarily have to be in accordance with the Final Rules. Plan sponsors must make a good-faith reasonable attempt to implement the Roth catch-up contribution rules.
Reflections on the Final Rules
Overall, the Final Rules will be helpful to plan sponsors as they implement the Roth catch-up contribution requirements. In particular, the following will ease the (significant) administrative burden:
- Deemed Elections: A plan can deem a person subject to the Roth catch-up contribution requirement as having elected Roth catch-up contributions.
- The deemed election concept will need to be added to plan documents.
- Example: An employee subject to the Roth catch-up contribution requirements elects pre-tax deferrals up to the maximum available limits. When the employee’s (pre-tax or total) contributions exceed the Code § 402(g) limit, the employee’s prior election is deemed to be an irrevocable Roth catch-up contribution election.
- Participants subject to a deemed Roth election must be given an “effective opportunity” to change the deemed Roth election. This means that the participant can either stop the catch-up contributions entirely or change them back to pre-tax catch-up contributions (even if the employee’s change to pre-tax contributions ends up requiring a plan correction at year-end to comply with the Roth catch-up rules).
- Separate Elections: Recognizing that some plans have a regular deferral election and a separate catch-up election, the Final Rules clarify that the “deemed Roth election” concept may apply to the separate catch-up contribution election, even where the participant has not yet exceeded the 402(g) contribution limit for the year.
- Substitution: Allows the plan to treat Roth elective deferrals as Roth catch-up contributions. Unlike the proposed rules, the Final Rules make this substitution concept optional when implementing the deemed Roth election but not optional when determining whether any corrections are necessary. A plan can require that once a participant subject to the Roth catch-up rules exceeds the 402(g) limit, that participant must make catch-up contributions as Roth, even where the participant may have already made Roth contributions equal to the catch-up requirement.
- Example (using 2025 limits): An employee subject to the Roth catch-up contribution requirements contributes $10,000 in Roth deferrals and $13,500 as pre-tax deferrals, the employee then contributed $7,500 as pre-tax catch-up contributions. The pre-tax catch-up contributions are treated as regular deferrals and $7,500 of the Roth deferrals are treated as Roth catch-up contributions.
- Under the Final Rules, even though the employee already has $10,000 in Roth contributions (and has already met the $7,500 Roth catch-up requirement), the plan can still deem the catch-up contributions as Roth when the employee exceeds the 402(g) limit of $23,500 (although the employee must be given an effective opportunity to override the deemed Roth election).
- Permissive Aggregation: Under the Final Rules, employers that are either (1) members of the same controlled group, or (2) using a common paymaster, can aggregate all FICA wages paid by that controlled group or through that common paymaster.
- If permissive aggregation is elected by a plan sponsor, then it would need to be added to the plan document via the Roth catch-up contribution amendment.
- The FICA wages in Box 3 are the wages that should be used to determine whether the Roth catch-up rules apply.
- Corrections: The Final Rules keep the same two correction methods from the proposed rule. These correction methods can only be used if the deemed Roth election is incorporated into the plan document. The first allows the plan sponsor to convert pre-tax catch-up contributions to Roth catch-up contributions if the conversion occurs prior to the W-2 due date for the year (January 31) with the converted amounts reported as taxable income. The second allows the plan sponsor to correct via an in-plan Roth rollover and report the correction on Form 1099-R in the year of the in-plan Roth rollover (with such correction to occur by the end of the plan year that follows the year of the failure).
- The Final Rules note that the in-plan Roth rollover correction can be used even if the plan does not otherwise allow in-plan Roth rollovers.
- The Final Rules require that employees be treated similarly. Accordingly, a plan can use both correction methods but must treat similarly situated employees the same and use the same correction method.
- The deadline to correct an excess deferral, including pre-tax catch-up contributions, is still April 15. So even with the correction methods above, deferrals that exceed plan limits must be corrected by April 15 to avoid adverse tax consequences.
- Plans are not required to correct amounts that are (1) below $250 or (2) that are required to be Roth only after FICA wages are corrected in a later year if such correction occurs more than one year after the year that the Roth catch-up correction would have been made (i.e., if wages are corrected in 2028 for the 2026 tax year, then the Roth catch-up requirements do not need to be fixed for the 2027 tax year).
- Example (using 2025 limits): An employee subject to the Roth catch-up contribution requirements contributes $10,000 in Roth deferrals and $13,500 as pre-tax deferrals, the employee then contributed $7,500 as pre-tax catch-up contributions. The pre-tax catch-up contributions are treated as regular deferrals and $7,500 of the Roth deferrals are treated as Roth catch-up contributions.
Administrative Difficulties
Even with the Final Rules being released and the various ways that the administrative burden is reduced, the Roth catch-up rules will still be difficult for employers to implement. Specifically, employers, payroll providers and plan recordkeepers will need to figure out how to administer and communicate deemed Roth elections and pre-tax catch-up overrides between the parties. In addition, plan sponsors will have to communicate these rules to participants in a way that they can understand.
Plan sponsors will have to work with their recordkeeper and payroll providers to determine where the deemed Roth election happens (i.e., does the recordkeeper change its file and then communicate that to the payroll provider, or vice versa, and how does the pre-tax catch-up contribution override work). However the deemed Roth election is implemented, the participant’s election needs to be re-applied on January 1 of the year that follows the year a deemed Roth election is implemented, and the payroll and recordkeeping services need to communicate these changes as well.
Because the Final Rules are not effective for 2026, plan sponsors may implement different procedures for 2026 that may not be available under the Final Rules in 2027. Of course, having different procedures for 2026 and 2027 would require plan sponsors to communicate one set of rules for 2026 and then a new set of rules in 2027 (if the process will change between those two years).
If you have any questions on specific implementation issues for your plan, please reach out to your Faegre Drinker benefits counsel.
The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.
