An individual may elect to defer some of their wages into a retirement plan through their employer’s plan [e.g., 401(k) plan]. That deferral could be as much as $24,500 for 2026. In addition, individuals who would reach age 50 by the end of the taxable year are permitted annual catch-up contributions of $8,000 for 2026 under IRC § 414(v)(1). This may allow an individual taxpayer to defer as much as $32,500 into a retirement plan (ignoring any nondiscrimination testing limitations, additional after-tax contributions, or “super” catch-up). When these contributions are made on a pretax basis, they can reduce one’s taxable wages. If an employer offers a designated Roth account option [aka, “Roth 401(k)”], individuals may contribute on an after-tax basis. While those contributions will not reduce one’s taxable wages, no tax is due on any qualified distributions or their earnings.
One notable revenue raiser from the Secure 2.0 Act was § 603, which added IRC § 414(v)(7). This new rule provides that if an individual’s prior year wages from the employer sponsoring the plan exceeded $145,000 [as defined in IRC § 3121(a)], catch-up contributions will be permitted only if they are designated Roth contributions and made pursuant to an employee election. (This $145,000 wage limit will be adjusted for the costof-living in increments of $5,000.) IRS Notice 2025-67 provides a wage threshold of $150,000 for 2025 to determine if catch-up contributions must be designated as Roth contributions for 2026.
Administrative Transition Period
Secure 2.0 was passed more than three years ago as part of the Consolidated Appropriations Act of 2022 (P.L. 117-328). There has been a delayed implementation of the Roth catch-up rule, which was originally supposed to go into effect for taxable years after December 31, 2023. In its original form, Secure 2.0 mistakenly struck IRC § 402(g)(1)(C). Subparagraph (C) allowed contributions above the applicable dollar amount under IRC § 414(v)(2)(B)(i)—which was $22,500 in 2023—to be excluded from gross income. Put differently, subparagraph (C) permitted the exclusion of catch-up contributions from gross income. If Secure 2.0 struck that provision, some tax professionals and plan administrators were concerned that no one, not even those with wages under the $145,000 threshold, could make elective deferrals that exceeded $22,500 (i.e., it would prevent catch-up contributions).
The IRS issued Notice 2023-62, which clarified that taxpayers can continue to make catch-up contributions despite the elimination of subparagraph (C). Additionally, they provided a two-year “administrative transition period,” which delays the requirement that catch-ups must be Roth contributions. Therefore, taxable years that begin after December 31, 2025, will be subject to this new Roth catch-up requirement. This was welcome news, as it gave companies time to set up a designated Roth option and to create systems to track prior year wages above the threshold. Final regulations were published September 14, 2025, and are generally effective for taxable years after December 31, 2026. During this time, when the code has been finalized but the regulations are not in effect yet, the IRS and Treasury expect a reasonable, good faith interpretation standard applies with respect to IRC section 414(v)(7).
Continuing Pre-Tax Contributions
The wage threshold is based on FICA wages (box 3 of Form W-2). A plan participant who is adamant on continuing to contribute on a pre-tax basis might consider payroll contributions to a Flexible Spending Account (FSA) or a Health Savings Account (HSA), also known as “cafeteria plans.” FSA funds generally have to be spent within the year, so the individual should have expenses (e.g., medical, dependent care) for the FSA to provide value. Payments under a cafeteria plan are not considered wages for FICA purposes under IRC § 3121(a)(5)(G). An employee might want to consider an HSA instead of an FSA. In many ways, the HSA can replicate pre-tax catch-up contributions for those with a high-deductible health plan. In 2026, an HSA can be funded with as much as $8,750 (MFJ), and after age 65 distributions can be spent for non-medical expenses without the 20% penalty. HSAs funded by payroll contributions can reduce FICA wages, whereas direct contributions to an HSA can provide an adjustment to AGI.
Applicability
The requirement that certain deferrals must be Roth contributions applies to applicable employer plans as defined under IRC § 414(v)(6)(A) [e.g., 401(k), 403(b), and 457 plans]. The threshold applies to FICA wages for the preceding year from the employer sponsoring the plan. Importantly, this is not an AGI threshold, and so a new employee (who has no prior year wages with that employer) should not be subject to the rule. The final regulations also give the example of someone without FICA wages from the employer, like a partner who had only self-employment income. The Secure 2.0 Act also increased the catch-up contribution amount for those participants who would reach age 60 but not age 64 before the close of the taxable year. The catch-up limit of $8,000 (2026) is increased to $11,250 (2026). These “super” catchup contributions must be made as Roth contributions if prior-year FICA wages exceed the threshold.
Plans Without a Roth 401(k) Option
During this administrative transition period, plans have been given time to add a qualified Roth contribution program which is completely optional under IRC section 402A. If an employer’s plan permits catch-up contributions but does not have a Roth 401(k) option, then any individuals subject to the Roth catch-up requirement will not be permitted to make catch-up contributions, notwithstanding the “universal availability requirement.” In short, the universal applicability rule is a nondiscrimination rule, requiring employers to give all employees access to permissible contributions to a plan. It is commonly associated with 403(b) plans under IRC section 403(b) (12)(A)(ii)—401(k) plans have different nondiscrimination rules (e.g., the actual deferral percentage test) for the $24,500 (2026) elective deferral. For catch-up contributions, however, universal availability rules do apply to 401(k)s, so all employees age 50 or older must be permitted to make catch-up contributions. If an employer does not offer a Roth 401(k) for those affected by the new rule, the employer will not fail the universal availability rules under the final regulations. These affected individuals can consider making Traditional or Roth IRA contributions instead for the year.
Deemed Roth Catch-Up Election
In order to facilitate compliance with the Roth catch-up requirement, an employer may adopt a deemed Roth catch-up election as permitted under the final regulations [Treasury Regulations § 1.401(k)-1(f)(5)(iii)]. Any employee subject to the Roth catch-up requirement will automatically have their catch-up designated as Roth contributions if an employer adopts this provision. This deemed election is also conditioned on the employee having an effective opportunity to make a new election that is different than the deemed election. Alternatively, if there is not a deemed Roth catch-up election implemented, an employee will have to affirmatively make a new election for their catch-up contributions to be designated as Roth contributions. CPAs should encourage employees to ask whether their company plans to implement deemed Roth catch-up elections.
Rules of Operation
Early year contributions designated as Roth contributions can count towards the Roth catch-up requirement. For example, Madeline starts off the 2026 year making Roth 401(k) contributions that total $10,000, then she switches to pre-tax contributions for the remainder of the year. If she is subject to the Roth catch-up requirement, the $10,000 she contributed earlier in the year can count as satisfying the requirement. In addition, an in-plan Roth rollover that is elected voluntarily does not satisfy the Roth catch-up requirement. For example: Steve converts $25,000 of his pre-tax 401(k) within the plan to a Roth 401(k) in the plan (an in-plan conversion). The $25,000 that is now in his Roth 401(k) does not satisfy the Roth catch-up requirement, because the amount of the in-plan conversion could be attributable to contributions other than his elective deferrals (e.g., a traditional IRA rolled into his plan).
A plan is permitted to aggregate some or all of its participating employers, for example, if there is a common paymaster or controlled group. The aggregation decision should have been considered during the transition period, but if these conversations were not had, CPAs should initiate them with the employers sponsoring the plan.
CPAs are in a great position during the tax filing season to remind individuals of these Roth catch-up requirements, and to remind them to ask their employers if any action is required on their behalf for making any catch-up contributions in the future. Depending on the facts and circumstances, individuals under the age of 50 who expect to have wages above the threshold in the near future may be more inclined to contribute on a pre-tax basis, knowing that the Roth option could be required on a portion of their retirement savings.
