The IRS recently issued final guidance on a significant SECURE 2.0 provision that changes how older, high-income employees contribute to their retirement plans. Starting in 2026, employees aged 50 and over who earned more than $145,000 (adjusted annually for inflation) in FICA wages from their current employer in the prior year will be required to make their catch-up contributions on a Roth (after-tax) basis. This change eliminates the option for traditional pre-tax catch-up contributions for higher earners in 401(k), 403(b), and governmental 457(b) plans.
Even though the new Roth requirement must be operational for most plans beginning Jan. 1, 2026, employers have until the last day of the first plan year beginning on or after Jan. 1, 2026, (i.e., Dec. 31, 2026, for calendar-year plans) to adopt written plan amendments. For collectively bargained and governmental plans, the plan amendment deadline is extended by two years.
The intent behind this rule is to generate more immediate tax revenue and promote the use of Roth savings, which grow and distribute tax-free. However, the shift means that affected participants will now pay taxes on their catch-up contributions up front, rather than deferring the tax until retirement. For many, this will reduce take-home pay during contribution years and may require adjustments to retirement planning strategies.
Importantly, not all catch-up contributions are impacted by the Roth mandate. Special catch-up rules under 403(b) and 457(b) plans are exempt from this requirement. In 403(b) plans, employees with at least 15 years of service at eligible employers, such as public schools and certain nonprofits, may qualify for an additional catch-up contribution of up to $3,000 per year, capped at $15,000 total. The Roth catch-up requirement does not apply to these special 403(b) catch-up as those contributions are treated first as the special 403(b) catch-up, then as age 50+ catch-up contributions.
Similarly, for governmental 457(b) plans, the Roth requirement applies only to the extent catch-up contributions exceed the regular 457(b) limit. Governmental 457(b) plans offer a special catch-up provision that allows participants, in the three years before reaching normal retirement age, to contribute up to double the standard limit, in order to “make up” for prior under-contributions.
When participants are eligible for both the regular age-50 catch-up and a special catch-up (under 457(b) or 403(b)), the IRS rules specify how these contributions are coordinated. For example, in a 457(b) plan, the special catch-up typically takes precedence. In some cases, using the special catch-up may allow a high-income participant to avoid the Roth requirement entirely.
For plan sponsors, this new rule creates a clear need to update plan documents, ensure that Roth contributions are permitted, and coordinate payroll and recordkeeping systems to support income-based contribution routing. Plans must also be able to distinguish between regular and special catch-up types, particularly for participants eligible for both. Effective communication with participants is also critical, as many may be unaware that their tax treatment is changing—or that they may still qualify for pre-tax options under special provisions.
For employees, now is the time to assess whether your income will cross the threshold and how that might affect your contributions starting in 2026. If you’re eligible for special catch-ups under a 403(b) or 457(b) plan, understanding how those provisions interact with the Roth requirement can help you preserve tax flexibility in your savings strategy.
The IRS has granted a transition period through the end of 2025, giving employers time to amend plans and update systems. However, given the administrative complexity and potential tax impact, it’s smart to start preparing now. If you have any questions about your plan documents and Roth catch-ups, please contact any of Bricker Graydon’s employee benefits team.
