Effective Jan. 1, 2026, SECURE 2.0 Act of 2022 (SECURE 2.0), requires most retirement plans permitting catch-up contributions to treat any catch-up contributions made by “High Wage Earners” as post-tax Roth contributions.
The Details
Historically employers may offer participants who are age 50 or older the opportunity to defer additional compensation (more than the standard annual limit, which is $23,500 for 2025) in the form of a catch-up contribution to their retirement accounts in certain retirement plans; 401(k) plans, 403(b) plans, 457(b) plans, etc.
Section 603 of SECURE 2.0, requires employers that offer catch-up contributions to treat the catch-up contributions made by “High Wage Earners” as post-tax Roth contributions. This requirement applies to most retirement plans including 401(k), 403(b), or 457(b). It does not apply to SARSEP, SIMPLE IRA plan, Starter K or Safe Harbor 403(b) plans.
How is a “High Wage Earner” Defined?
In this context, a “High Wage Earner” is an employee whose wages (as defined in Internal Revenue Code Section 3121(a)) from the employer sponsoring the plan during the preceding calendar year exceeded $145,000 (indexed annually). The wage threshold is based on Social Security (FICA) wages paid to the individual by the employer sponsoring the plan.
Only wages paid by the employee's direct common-law employer are considered; other controlled group entities are disregarded. The wage threshold is not prorated for an individual’s year of hire. Therefore, a participant would only be subject to the mandatory Roth catch-up requirement in the second year of employment if their wages from the employer sponsoring the plan in their year of hire exceeded the full Roth catch-up wage threshold.
Proposed Regulations
In January 2025, the Internal Revenue Service (IRS) issued proposed regulations that include general rules relating to the Roth catch-up requirements to 401(k) and 403(b) regulations for these changes to catch-up contributions under SECURE 2.0. The proposed regulations are consistent with prior guidance under Notice 2023-62 and provide additional explanation and rules for implementing changes made by SECURE 2.0.
Next Steps
· Plan sponsors that currently offer catch-up contributions but do not offer Roth contributions must add a Roth contribution feature to enable “High Wage Earners” to make catch-up contributions.
· Discuss necessary changes with your Plan Sponsor and Plan Administrator. For example, do you need to add Roth to your plan? Do you have a separate election for catch-up contributions?
· We will provide additional information and instructions in the Fall as the January effective date approaches and will also monitor the proposed IRS regulations and communicate any impact those final regulations have on our products and services.
How ADP TotalSource® plans to help
· If your plan has recently added a Roth option but you have not contacted ADP TotalSource to set up a Roth deduction code, please contact your Payroll Business Partner to request a new code.
· Be on the lookout for additional instructions asking you to review employee wages for tax year 2025 and flag high wage earners in the payroll system.
· ADP TotalSource will presume that if you have catch-up eligible, high wage earners your plan has added a Roth option and will automatically process catch-up deductions as Roth contributions for employees flagged as high wage earners.
· If your plan does not offer a Roth option and you have catch-up eligible, high wage earners, you must notify ADP TotalSource by contacting your Payroll Business Partner.
· All clients with the ADP TotalSource 401(k) Retirement Savings Plan, also known as our Multiple Employer Plan (MEP), are already set up for Roth contributions. Catch-up eligible employees flagged as high wage earners will have catch-up contributions automatically shifted to Roth contributions after meeting the standard limit.
FAQ – Roth Catch-up Contributions for High Wage Earners (Section 603)
Q: May I exclude non-High Wage Earners from making catch-up contributions as Roth?
A: No. For plans that offer catch-up contributions and a Roth option, if any catch-up-eligible participants must make catch-up contributions as designated Roth contributions for a plan year, then all other catch-up-eligible participants must also be allowed to make their catch-up contributions as designated Roth contributions for that year.
Q: May I allow all catch-up contributions only as Roth (no pre-tax)?
A: No. If a plan permits Roth catch-up contributions, it must also permit pre-tax catch-up contributions (for non-High Wage Earners eligible for catch-up contributions).
Q: Am I required to offer a Roth catch-up option?
A: No. Plans are not required to include a Roth option. For plans with a catch-up provision but no Roth option, the proposed regulations provide that participants subject to the mandatory Roth catch-up requirement would have a maximum catch-up contribution limit of $0, effectively preventing them from making any catch-up contributions. However, other catch-up-eligible participants can still make catch-up contributions without the plan violating the universal availability requirement.
Q: Can I count a High Wage Earner’s regular Roth contributions toward the Roth catch-up requirement?
A: Yes, under the proposed regulations, a plan can take into account Roth contributions that a High Wage Earner made prior to reaching the applicable deferral limit ($23,500 in 2025), for purposes of determining whether the mandatory Roth contribution requirement is satisfied. Mandatory Roth catch-up is only required to the extent that the High Wage Earner has not previously made Roth contributions during the plan year equal to the applicable catch-up limit, $7,500 for employees over 50 or $11,250 for employees aged 60-63 in 2025.