A major provision of the SECURE 2.0 Act goes into effect on January 1, 2026, and it will significantly change how higher-income employees make their 401(k) catch-up contributions. Employers, payroll teams, and plan participants should understand the new rules now to avoid disruptions later.

Roth Catch-Up Contributions Required for High Earners

Beginning in 2026, employees with prior-year FICA wages over $145,000 (2025 figure, indexed annually) will be required to make all catch-up contributions on a Roth (after-tax) basis.

This means:

• No more pre-tax catch-up contributions for high earners
• All catch-up dollars must be contributed after-tax and will grow tax-free if withdrawn in retirement
• The wage threshold applies separately for each employer

The rule is designed to increase long-term tax revenue, but it also gives participants potential tax-free growth, assuming they are comfortable with paying taxes up front.

Lower Earners Keep Full Flexibility

Employees with prior-year wages below the threshold may continue choosing between:

• Traditional pre-tax catch-up contributions
• Roth (after-tax) catch-up contributions

This flexibility remains available as long as the employer’s plan offers both contribution types.

401k Plans Without a Roth Option & Their Implications

If a plan does not currently allow Roth contributions, the new requirement creates a significant issue.

Starting in 2026:

• High earners will not be able to make any catch-up contributions
• This restriction remains until the plan is amended to include a Roth option

Many employers, especially those with older or smaller plans, may need to update plan documents and payroll systems to maintain catch-up eligibility for affected employees.

IRS Guidance & the Final Effective Date

The IRS has issued final regulations confirming the effective date of January 1, 2026.

The extended timeline gives employers and plan administrators more time to:

• Update plan documents
• Coordinate changes with payroll providers
• Communicate updates to employees

However, the extra time does not eliminate the need for early preparation, especially for employers planning plan amendments.

What Employers Should Do Now

1. Review the Plan’s Current Features

Determine whether Roth contributions are already permitted. If not, begin evaluating whether and how to add a Roth option.

2. Identify Employees Likely to Exceed the Wage Threshold

This allows HR and payroll teams to better anticipate who will be affected and prepare necessary updates.

3. Communicate Upcoming Changes Clearly and Early

Employees need time to understand how their catch-up strategy will change in 2026.

Final Thoughts

The 2026 catch-up rule marks one of the most impactful SECURE 2.0 updates for both employers and higher-income employees. Preparing proactively will help avoid compliance issues and ensure plan participants can continue maximizing their retirement savings.  Please contact your Wegner Tax Advisor if you have questions on implementing this 2026 retirement plan change.