By Kevin J. Bonnett, CPA, Vice President & Director
Under the provisions of the SECURE 2.0 Act beginning on January 1, 2026, the catch-up contribution rules for certain plan participants in 401(k), 403(b) and 457(b) government plans are changing.
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This change relates to any plan participants who are eligible for catch-up contributions (50 years or older) and who are determined to be a highly compensated employee. Under the provision, any plan participant deemed to be a highly compensated employee must have all catch-up contributions made as designated Roth contributions (after-tax). This includes any “additional catch-up” contributions allowable for individuals between 60 and 63 years old.
The determination of which plan participants are classified as highly compensated is calculated by reviewing FICA wages (Box 3 of the W2) that were earned only from the employer sponsoring the plan in the prior year. The calculation does not include wages earned from other employers. Wages from the employer sponsoring the plan are then compared to the annual IRS highly compensated employee threshold, which is indexed for inflation at $150,000 for 2026 plan year contributions.
To comply with this provision, plan sponsors need to ensure they are reviewing 2025 compensation for all participants and working with the payroll providers or other service providers involved in the calculation of contributions. They need to ensure that any plan participant deemed to be highly compensated is properly identified so that any catch-up contributions are processed as Roth and not pre-tax contributions.
IMPORTANT NOTE: This rule change does not affect normal employee deferrals or employer contributions; this only relates to catch-up contributions for those employees deemed to be highly compensated.
What if my plan does not allow for Roth contributions?
Another key consideration related to this rule change is if your plan does not allow for Roth contributions. Any plan participants deemed to be highly compensated employees will not be able to make catch-up contributions in 2026 and future years, therefore limiting their ability to save for retirement.
To avoid such a restriction, plan sponsors should review their plan documents. If Roth contributions are currently not allowed, then consider a plan amendment to allow for Roth contributions.
If you have questions about these changes to retirement plan catch-up contributions or other employee benefit plan matters, please contact our employee benefit plan team at GT Reilly & Company.
See also: 2026 Retirement Plan Contribution Limits
