Roth Catch-Up Contributions 2026: What High Earners Need to Know | SW CPAS
If you are approaching retirement age and have been maximizing your 401(k) catch-up contributions on a pre-tax basis, a critical rule change may affect your retirement planning strategy starting in 2026. The SECURE 2.0 Act introduced a requirement under IRC § 414(v)(7) that fundamentally changes how certain high-earning employees can make Roth catchup contributions 2026 and beyond. After a two-year administrative transition period, this rule is now in full effect for taxable years beginning after December 31, 2025. Whether you are a plan participant, HR professional, or CPA advising clients, understanding this change is essential to avoiding unintended tax consequences and lost retirement savings opportunities.
What Is the New Roth Catch-Up Contribution Rule for 2026? 💡
Starting in 2026, employees whose prior-year FICA wages from the plan-sponsoring employer exceeded $150,000 (the threshold set in IRS Notice 2025-67) must make all catch-up contributions as Roth (after-tax) contributions — pre-tax catch-up contributions are no longer allowed for these individuals.
Under current law, employees age 50 or older can defer up to $24,500 into a 401(k) plan in 2026, plus an additional $8,000 catch-up contribution — for a total of $32,500. Historically, both the base deferral and the catch-up could be made on a pre-tax basis, reducing current taxable wages. Section 603 of the SECURE 2.0 Act added IRC § 414(v)(7), which changes that for higher earners. If your FICA wages (as reported in Box 3 of your W-2) from the employer sponsoring the plan exceeded $145,000 in the prior year — adjusted annually; IRS Notice 2025-67 sets the 2025 wage threshold at $150,000 for determining 2026 eligibility — your catch-up contributions must go into a designated Roth account within the plan.
Importantly, this is a FICA wage threshold, not an adjusted gross income (AGI) threshold. FICA wages typically include regular wages, bonuses, and overtime, but exclude certain pre-tax benefit contributions such as employer-sponsored health insurance and cafeteria plan elections. Self-employment income and partnership distributions do not count as FICA wages, so a partner with no W-2 wages from the sponsoring employer would not be subject to this rule.
The IRS issued Notice 2023-62 to clarify that catch-up contributions could continue during the transition period, and final regulations were published on September 14, 2025, generally effective for taxable years after December 31, 2026. However, the underlying statutory requirement under IRC § 414(v)(7) applies for taxable years beginning after December 31, 2025 — meaning plan year 2026 is now subject to the new rule, with the IRS and Treasury expecting a reasonable, good-faith interpretation standard to apply in the interim before the final regulations take effect.
| Contribution Type | 2026 Limit | Who Can Use |
|---|---|---|
| Elective deferral (401k/403b) | $24,500 | All participants |
| Catch-up contribution (age 50+) | $8,000 | Age 50+ (must be Roth if wages > $150k) |
| Super catch-up (age 60–63) | $11,250 | Age 60–63 (must be Roth if wages > $150k) |
| Wage threshold for Roth requirement | $150,000 (2025 FICA wages) | Applies to 2026 plan year |
What Happens If My Plan Does Not Offer a Roth 401(k) Option? ⚠️
If your employer’s plan allows catch-up contributions but does not yet have a designated Roth account option, employees subject to the new Roth catch-up requirement will not be permitted to make catch-up contributions at all in 2026 — though the employer will not fail nondiscrimination testing as a result.
This is one of the most consequential aspects of the new rule. Under normal circumstances, the “universal availability” requirement obligates employers to extend catch-up contribution eligibility to all employees age 50 or older. Under the final regulations, an employer that lacks a Roth option will not fail this universal availability rule if some employees cannot make catch-up contributions due to the new requirement. However, those employees will lose access to $8,000 (or $11,250 for super catch-up eligible participants) in tax-advantaged retirement savings for the year.
CPAs and HR professionals should be actively confirming with plan sponsors whether a qualified Roth contribution program has been added to their plan. The transition period that ended December 31, 2025 was designed specifically to give employers time to add this option. If the conversation was not had, it may already be too late for 2026, and plan participants affected by the rule may need to consider Traditional or Roth IRA contributions as an alternative for this year.
The wage threshold is based on the prior year’s FICA wages — not the current year. So to determine whether an employee must make Roth catch-up contributions in 2026, look at their 2025 FICA wages (Box 3 of the 2025 W-2). IRS Notice 2025-67 sets the 2025 reference threshold at $150,000. A new employee with zero prior-year wages from that employer is NOT subject to the Roth catch-up requirement — even if their current-year wages will exceed the threshold.
Are There Ways to Keep Pre-Tax Retirement Savings If I Am Affected? 💰
Yes — employees who prefer to reduce their current taxable income may still contribute pre-tax to a Health Savings Account (HSA) or Flexible Spending Account (FSA), both of which reduce FICA wages and provide tax advantages comparable to pre-tax retirement contributions.
Cafeteria plan contributions — including FSA and HSA payroll deductions — are excluded from FICA wages under IRC § 3121(a)(5)(G). This means these contributions do not count toward the $150,000 threshold. For individuals who want to maintain pre-tax savings, these plans offer a meaningful alternative. The HSA is particularly powerful: in 2026, an individual with a high-deductible health plan (HDHP) can contribute up to $8,750 to an HSA on a family basis. After age 65, HSA funds can be withdrawn for any purpose without the 20% penalty (though income tax applies on non-medical withdrawals), making the HSA function somewhat like a Traditional IRA in the long run.
What Is a Deemed Roth Catch-Up Election and Should Employers Adopt It? 🏢
A deemed Roth catch-up election is a plan provision under Treasury Regulations § 1.401(k)-1(f)(5)(iii) that automatically designates affected employees’ catch-up contributions as Roth — simplifying administration and ensuring compliance without requiring individual employees to take action.
Under this optional provision, affected employees are automatically enrolled to have their catch-up contributions designated as Roth. The deemed election is conditioned on the employee having an effective opportunity to elect otherwise. For plan administrators managing hundreds or thousands of participants, this approach dramatically simplifies compliance tracking. CPAs advising employer clients should strongly encourage conversations with plan administrators or third-party administrators (TPAs) about whether to adopt the deemed Roth catch-up election provision.
Also worth noting: early-year contributions designated as Roth contributions can count toward the Roth catch-up requirement. For example, if an employee starts 2026 by making $10,000 in Roth 401(k) contributions before switching to pre-tax for the remainder of the year, those early Roth contributions count as satisfying the requirement. However, in-plan Roth rollovers do not satisfy the requirement — the rule is specifically about elective deferrals designated as Roth, not conversions of existing plan assets.
In our Los Angeles practice, we are seeing many business owners and senior executives caught off guard by this rule. The key action items for 2026 are: (1) Confirm your employer’s plan has a Roth 401(k) option; (2) Determine whether your 2025 FICA wages exceeded $150,000; (3) If yes, ensure your catch-up election is designated as Roth; and (4) Consider HSA or FSA maximization to offset the loss of pre-tax catch-up deductions. For clients who are plan sponsors, we recommend reviewing your plan document and engaging your TPA now to confirm compliance with IRC § 414(v)(7). For personalized retirement tax planning, review the IRS FAQ on catch-up contributions.
Frequently Asked Questions ❓
- The SECURE 2.0 Roth catch-up rule is now in effect for 2026 — no more transition period.
- Employees with 2025 FICA wages over $150,000 must designate catch-up contributions as Roth.
- If your plan has no Roth option, affected employees cannot make catch-up contributions in 2026.
- HSA and FSA contributions remain a viable pre-tax savings alternative.
- Employers should confirm their plans are updated and consider adopting a deemed Roth catch-up election.
