A provision of the SECURE 2.0 Act that’s been delayed twice is now actually in effect: as of January 1, 2026, employees age 50 or older who earned more than $150,000 in FICA wages the prior year can no longer make pre-tax catch-up contributions to a 401(k), 403(b), or governmental 457(b) plan. Their catch-up contributions must go into a Roth account instead. For small business owners who sponsor a retirement plan, this is a payroll and plan-document problem that needs attention now, not at year-end.
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What happened
Under the new rule, workers who are 50 or older during the calendar year and earned above $150,000 in FICA wages in 2025 must make their catch-up contributions — both the standard $7,500 catch-up and the enhanced “super catch-up” of $11,250 available to those aged 60-63 — on a Roth basis only, according to a compliance summary from accounting firm Larson Gross. Employees at or below the $150,000 threshold can still choose pre-tax or Roth catch-up contributions as before. The rule doesn’t apply to self-employed individuals, K-1 partners, or IRAs.
The requirement was originally slated to take effect January 1, 2024, but the IRS granted transition relief pushing it back, with final regulations issued September 15, 2025. Mandatory compliance began January 1, 2026, though the IRS is allowing a “reasonable, good faith” compliance standard through the end of this year before stricter enforcement begins in 2027.
Critically, plans that don’t currently offer a Roth contribution option aren’t required to add one — but if they don’t, they’re barred from accepting any catch-up contributions from employees who cross the $150,000 threshold, effectively cutting off a benefit those employees previously had.
Why it matters
This isn’t optional guidance — it’s a plan compliance requirement, and the guidance is explicit that “the compliance obligation rests squarely with the employer.” Getting it wrong isn’t abstract: errors show up as incorrect W-2s and Form 1099-R reporting problems for the specific employees affected, which means an owner or bookkeeper who misses this could be looking at corrected tax forms for their higher-paid staff.
What this means for small business owners
If you sponsor a 401(k) or similar plan and have any employees 50 or older earning above the $150,000 threshold, here’s the short list before year-end:
- Confirm your plan has a Roth contribution feature. If it doesn’t, you’ll need to amend your plan document — the deadline referenced in current guidance is December 31, 2026.
- Run a wage check now. Identify which employees crossed $150,000 in FICA wages in 2025, since that’s what determines 2026 treatment.
- Loop in your payroll provider and recordkeeper. This is a payroll-system change, not just a plan-document change — test it before it affects a real paycheck.
- Tell affected employees before their next catch-up contribution posts. A surprise shift from pre-tax to Roth changes their take-home pay and their tax picture; nobody wants to find out from a pay stub.
Even if you’re using the IRS’s good-faith compliance window through 2026, cleaning this up now is far cheaper than correcting W-2s in 2027.
The bottom line
The Roth catch-up mandate has been “coming soon” for two years — it’s here now, and the businesses that treat it as a today problem instead of a year-end scramble will avoid the messiest part: fixing tax forms after the fact. If you haven’t already, this is worth a conversation with your bookkeeper or payroll provider this month.
