Key Takeaways

• Generally, 401(k), 403(b) and 457(b) plans must comply with the Roth catch-up requirement as of January 1, 2026. However, reasonable good faith compliance is permitted until January 1, 2027.
• Plan participants with wages in excess of $145,000 (indexed) must make catch-up contributions only in the form of Roth contributions.  Use Social Security wages from Box 3 of Form W-2 to determine who is subject to the new rule.
• Employers may implement a “deemed election” for participants who are subject to the Roth catch-up requirement.
• If an employer implements the deemed election, there are two new correction methods available to fix catch-up contribution characterization mistakes.

On September 16, 2025, the Internal Revenue Service (IRS) issued final regulations to reflect statutory changes under Section 603 of SECURE 2.0, which generally require that catch-up contributions made by participants in 401(k), 403(b) and 457(b) plans whose FICA wages exceed $145,000 (indexed) must be made as Roth contributions. While the final regulations provide relief for employers, the IRS did not delay the general effective date for compliance, which remains January 1, 2026 for plans that are not collectively bargained multi-employer plans. This alert focuses on the new rules as they relate to 401(k), 403(b), and 457(b) plans. It does not address collectively bargained multi-employer plans.

No Further Delay in General Effective Date

The IRS previously provided a two-year “transition period”, which allowed catch-up contributions to continue to be made as either Roth or pre-tax contributions in 2024 and 2025. The final regulations declined to further extend the transition period. The final regulations, however, are not effective until January 1, 2027, so employers may apply a reasonable, good faith interpretation of the requirement until then.

Wages to Determine Eligibility are Social Security Wages from Box 3 of Form W-2

To determine if an employee exceeds the wage base for the Roth catch-up mandate, employers should look to Social Security wages in Box 3 of Form W-2 (not Medicare wages in Box 5). This means that state and local government employees and partners with self-employment income who are not subject to Social Security (and therefore do not have any Box 3 wages) are not subject to the Roth catch-up requirement. 

Notably, the IRS specifically stated that use of Box 5 (Medicare wages) would be a reasonable good faith interpretation of the statute prior to the effective date of the regulations (January 1, 2027).

Employers May Implement a “Deemed Election”

Under the final regulations, catch-up contributions must be designated Roth contributions only to the extent a participant who is subject to the Roth catch-up requirement has not previously made elective deferrals that are designated Roth contributions during the year that equal or exceed the applicable catch-up limit.

However, to simplify administration and ensure compliance with the law, a plan may provide that participants who are subject to the Roth catch-up requirement are deemed to have irrevocably elected to make their catch-up contributions as Roth contributions, regardless of any prior designated Roth contributions. If a plan implements the deemed election, the plan must provide participants with an effective opportunity to change the deemed election. For example, electing not to make any catch-up contributions. Employers may chose when the deemed election will apply:

• After the participant’s pre-tax elective deferrals exceed the 401(a)(30) or 457(b)(2) limit (or in the case of a 457(b) plan, after the special three-year catch-up limit is exceeded, if applicable); or
• After the participant’s pre-tax and Roth elective deferrals exceed the 401(a)(30) or 457(b)(2) limit (or in the case of a 457(b) plan, after the special three-year catch-up limit is exceeded, if applicable).

In general, the deemed election must end when the participant is no longer subject to the Roth catch-up requirement.

In addition, for an employer to use either of the two new correction methods outlined in the regulations when there has been a failure to comply with the Roth catch-up requirement, the plan must include the deemed election feature. Of course, other correction methods remain available.

Two New Correction Methods Available

If a plan includes the deemed election, the final regulations provide two new methods for correcting situations where the catch-up contributions should have been made as Roth contributions but instead were made as pre-tax contributions.

• Correction on Form W-2: The plan may transfer the catch-up contribution amount (adjusted for earnings and losses) from the participant’s pre-tax account to the participant’s Roth account and report the contribution amount (not adjusted for earnings and losses) as a Roth elective deferral on the participant’s Form W-2 for the year in which the elective deferral was originally excluded from income as pre-tax. This method can only be used if the participant’s Form W-2 has not yet been filed or furnished to the participant.
• Correction by In-Plan Roth Rollover: The plan may roll over the catch-up contribution amount (adjusted for earnings and losses) from the participant’s pre-tax account to the participant’s Roth account as an in-plan Roth conversion. The direct rollover amount would be reported on Form 1099-R for the year of the rollover. This method can be used even if the Plan does not otherwise allow for in-plan Roth conversions.

A plan may use both correction methods as long as the correction methods are applied consistently to similarly situated participants. 

Conclusion and Next Steps

Although the final regulations provide helpful guidance for compliance with the new Roth catch-up requirement rules, the rules still may present numerous challenges for employers with plans containing catch-up provisions or that are considering adding a catch-up feature. Employers should coordinate with their payroll and recordkeeping teams to ensure systems are put in place to administer catch-up contributions in compliance with Section 603 of SECURE 2.0. Employers should communicate the new rules to employees before the January 1, 2026 effective date so that participants are aware of the changes and have an effective opportunity to make changes to deemed elections, if applicable.

Because of the amount of information contained in the regulations, we were unable to cover all the details regarding the new rules in this alert. Please reach out to our employee benefits team with any questions regarding the new rules or how the Roth catch-up requirement affects your plans.