This article is the first in a series on key decisions retirement plan sponsors need to consider ahead of the January 1, 2026 deadline to comply with the Roth catch-up contribution requirement.
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Starting January 1, 2026,[1] participants in 401(k), 403(b) or governmental 457(b) plans who are age 50 or older and who earned more than $145,000 (indexed) in FICA wages from the employer sponsoring the plan in the prior year are generally required to make all catch-up contributions on an after-tax Roth basis.
The IRS has just issued final regulations providing guidance to implement and comply with the new mandate.[2] The rules are complex and require plan sponsors to make numerous decisions using a structured approach; sponsors may decide on a path for 2026 (a year of good faith compliance) that differs from the path chosen for 2027 and later years, when full compliance with the final regulations is required. In light of the looming January 1, 2026 deadline to comply with the Roth catch-up contribution requirement, plan sponsors need to immediately begin developing a strategy for compliance.
This article is the first in a series that will explore key decision points, options that are available (which may depend on the capabilities of the payroll provider and the plan’s recordkeeper), and factors to consider when making these decisions.
The topics covered will include:
Ensuring that high-income earners make catch-up contributions on a Roth basis: Should an affirmative Roth catch-up contribution election approach or a “deemed election” approach be used? If a deemed election approach is used, when should it apply (i.e., when a participant’s total elective deferrals — pre-tax and Roth — reach the salary deferral limit or when only pre-tax elective deferrals reach the salary deferral limit), how will the requirement to give participants an effective opportunity to make a different election be satisfied (i.e., what choices will be made available and how often), and how should the deemed election be effectuated (i.e., should the plan’s recordkeeper or the payroll provider change the pre-tax election)?
Identifying high-income earners subject to the mandate: When employees work for multiple related employers, should prior year FICA wages from some or all of these employers be aggregated? How would aggregation impact an individual employed by more than one aggregated employer if these employers sponsor separate plans? What other special situations need to be considered?
Preparing for corrections: When catch-up contributions for a high-income earner are inadvertently treated as pre-tax contributions, are corrections always necessary? Should the Form W-2 correction method, the in-plan Roth rollover correction method or the distribution method be used? What are the relevant correction deadlines, and what are the consequences of late corrections?
Best practices for communicating changes to participants: Should education be provided on the potential benefits of Roth contributions? Should multiple communications be provided?
Now is the time for sponsors to understand their options, make informed decisions, document responsibilities, develop processes and controls, and ensure that payroll and recordkeeping systems are updated and tested. If you are unsure if your plan is ready, your WTW team and our Roth catch-up contribution experts are available to help.
Footnotes
The final regulations generally apply to contributions in taxable years beginning in 2027. However, the final regulations provide a later applicability date for certain governmental plans and plans maintained under a collective bargaining agreement. The final regulations also permit plans to implement the Roth catch-up requirement for contributions in taxable years prior to the applicability date of the final regulations using a reasonable, good faith interpretation of statutory provisions. Return to article undo
In a recent webcast, WTW experts provided an overview of the final regulations. A recording of the webcast is available here. Return to article undo
