Section 603 of SECURE 2.0 added section 414(v)(7): a catch-up eligible participant whose wages from the plan sponsor in the prior year were above an indexed threshold may make catch-up contributions only as designated Roth contributions. The Treasury finalized the regulations on September 16, 2025, in new Treas. Reg. section 1.414(v)-2. The IRS tells participants that the requirement applies in 2026 if prior-year wages with the plan sponsor exceeded $150,000. This article explains how the test works, who falls outside it, and how to correct a failure.
Who is subject to the Roth catch-up requirement?
The statutory rule applies to contributions in taxable years beginning after December 31, 2023. The regulations apply to contributions in taxable years beginning after December 31, 2026, and for earlier years a reasonable, good faith interpretation standard applies. Plans may apply the regulations early. Collectively bargained plans and governmental plans have later dates in the regulation.
A participant is subject to the requirement when two things are true:
- The participant is catch-up eligible, meaning the participant is age 50 or older by year end and may make catch-up contributions. Only elective deferrals above an applicable limit, such as the section 401(a)(30) limit, are treated as catch-up contributions and must be Roth.
- The participant's wages from the employer sponsoring the plan for the preceding calendar year exceeded the Roth catch-up wage threshold.
The threshold starts at $145,000 and is indexed in the same manner as section 415(d) adjustments, using a base period of the quarter beginning July 1, 2023, with increases rounded down to a multiple of $5,000. Treas. Reg. section 1.414(v)-2(a)(3) sets that formula. The IRS gives the resulting figure for 2026 as $150,000, applied to 2025 wages.
Plans described in section 408(k) or (p), which are the SEP and SIMPLE IRA plans, are outside section 414(v)(7).
What counts as wages for the test?
The test uses wages as defined in section 3121(a) for the Social Security taxes under sections 3101(a) and 3111(a). In the preamble, Treasury confirmed that this means the Social Security wages reported in Box 3 of Form W-2 for the prior year, and not the Medicare wages in Box 5. Plans may rely on a timely filed Form W-2 to make the determination.
Two consequences follow for practice:
- Self-employment income is not wages. An owner who takes a distributive share of partnership income has no FICA wages from it. The regulation's Example 2 involves an accounting firm partnership. A participant had $60,000 of FICA wages before becoming a partner in May and a $155,000 distributive share of partnership income, for $215,000 of total compensation. Only the $60,000 counts, so the participant was not subject to the requirement.
- Past wages can follow a person into partnership. In Example 1, an employee had $156,000 of FICA wages through October, became a partner in November and then had only self-employment income. The prior-year wages exceeded the threshold used in the example ($155,000), so the participant's catch-up contributions for the next year had to be Roth.
Whose wages are counted when there is more than one employer?
The default employer is the common law employer. A plan may elect to aggregate wages from employers using a common paymaster, from other members of a controlled group under section 414(b), (c), (m) or (o), and from predecessor and successor employers in an asset purchase. Where the plan does not aggregate, each employer sponsoring the plan stands alone. Example 4 shows a participant with $160,000 of wages from one controlled group member and $35,000 from the member that paid the 2027 compensation. With no aggregation, the participant was not subject to the requirement for deferrals out of the second employer's pay. For a disregarded entity, the owner is treated as the sponsoring employer.
What if the plan has no Roth feature?
If a plan has no qualified Roth contribution program, the maximum catch-up for a participant who is subject to the requirement is $0. The plan does not fail universal availability by refusing catch-ups to those participants. If a plan lets any subject participant make Roth catch-ups, it must let all catch-up eligible participants do so.
The regulation also gives a deemed election. A plan's procedures can treat a subject participant as having irrevocably designated catch-up deferrals as Roth once total deferrals for the year exceed the section 401(a)(30) limit, so long as the participant has an effective opportunity to make a different election.
What are the 2026 catch-up amounts?
The IRS lists the 2026 catch-up limit at $8,000 for 401(k), 403(b), SARSEP and governmental 457(b) plans, and $11,250 instead for employees who turn 60, 61, 62 or 63 during the year. Those higher-age amounts have applied since 2025.
How is a failure corrected?
If pre-tax deferrals above the limit should have been Roth, the plan can correct by one of two methods, applied consistently to similarly situated participants:
- Form W-2 correction. Move the amount, adjusted for earnings, from the pre-tax account to the Roth account and report it as a Roth elective deferral on the Form W-2 for the year, if that W-2 has not yet been filed or furnished.
- In-plan Roth rollover. Directly roll the amount, adjusted for earnings, to the Roth account and report it on Form 1099-R for the year of the rollover.
The plan must have practices in place at the time of deferral that are designed to comply. The correction deadline for deferrals above a statutory limit is the last day of the taxable year after the year of the deferral, but the earlier April 15 date still governs excess-deferral treatment. A failure of $250 or less does not need correction.
Worked example from the regulation
Regulation Example 5 assumes 2027 figures: a $25,000 section 401(a)(30) limit, an $8,000 catch-up limit and a $155,000 threshold. Participant D had $156,000 of wages in 2026 and elects $1,250 per pay period for 24 pay periods, a total of $30,000, all pre-tax.
- Deferrals above the $25,000 limit: $30,000 minus $25,000 = $5,000.
- Those $5,000 must be Roth. Unless corrected by the April 15, 2028 date, the excess deferral is not treated as corrected for section 402(g) purposes.
In Example 6, D made the first $3,750 (three pay periods of $1,250) as Roth deferrals and the rest pre-tax. Those Roth deferrals count toward the requirement, so the correction is $5,000 minus $3,750 = $1,250.
What should the plan's auditor and tax preparer do?
Obtain the plan document's Roth and aggregation terms, the payroll register's Box 3 wages for the prior year, and the deferral report by pay period. Test the participants whose prior-year wages exceed the threshold and confirm that deferrals over the section 401(a)(30) limit went to the Roth source. For plans audited under ERISA, see 401(k) audit requirements and plan document and operational compliance testing. For the firm's own plan, partners should look at the 2026 business tax checklist.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- Federal Register (govinfo), Catch-Up Contributions, final regulations (T.D. 10033), 90 FR, September 16, 2025: https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf
- IRS, Retirement topics: Catch-up contributions: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
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