Starting January 1, 2026, Highly Paid Individuals Must Make Their Catch-Up Contributions as Roth.
The SECURE 2.0 Act impacts catch-up contributions for 401(k), 403(b), and 457(b) plans. Participants who earned more than $145,000 in FICA wages in the year must make any catch-up contributions in the following year as Roth contributions. For example, an employee who earned more than $145,000 in 2025 must make all catch-up contributions in 2026 as Roth.
The IRS refers to these participants as “Highly Paid Individuals,” or HPIs. The $145,000 threshold is subject to change annually.
Key Points for Plan Sponsors
- New Hires may get a pass the first year. If you pay an employee less than the threshold in the year, they are not an HPI for the following year. For example, you hire a director mid-year and pay them $85,000 in 2025. They are not an HPI for 2026.
- Payroll has a new threshold to manage. The HPI limit pegged to FICA wages is a brand-new requirement for payroll to manage.
- Payroll just got more complicated. Payroll must track enhanced catch-up for those age 60 to 63 if you adopted this provision and must also track the HPI threshold. That leads to four permutations.
- The money must come into the Plan as Roth. There are complexities with Roth contributions. Your payroll provider must take the impacted catch-up contributions as Roth dollars at the time the deductions occur and pass them as Roth catch-up on the payroll files.
What You Should Do Next
- Review the SECURE 2.0 provisions and your Plan document. Did you adopt the enhanced catch-up, or will you? Do you have Roth in the Plan?
- Discuss this soon with your Payroll provider. Are they on track to manage catch-up as Roth for HPIs for 1/1/2026? If so, how will they do it?
- Determine your path forward. If your payroll provider can handle the requirements, make sure your Plan already has the Roth provision (most do). If they can’t accommodate the requirements, offering catch-up will quickly become very complicated. Your best bet in that situation would be to drop the catch-up from your plan, which would most likely annoy your older HPIs.
Your Retirement Team is Here to Help
If you have any questions, please reach out to your Client Services Manager for a consultation.