The clock is ticking. Starting January 1, 2026, the world of catch-up contributions changes in a big way. Thanks to SECURE 2.0 and the IRS’s final regulations, higher-earning participants who want to make catch-up contributions will only be able to do so on a Roth (after-tax) basis.
For plan providers — whether you’re a TPA, advisor, payroll vendor, or recordkeeper — this isn’t just another technical tweak. It’s a sweeping operational shift. Let’s break it down.
What’s Changing
Beginning in 2026, if a participant earned more than $145,000 in FICA wages from the plan sponsor in the prior year (indexed for inflation), any catch-up contributions they make must be Roth. No more pre-tax catch-up for that group.
Participants under the threshold can still choose pre-tax or Roth for catch-up. But the burden on providers is identifying which employees are in which bucket — and making sure systems handle the difference without error.
The Operational Pressure Points
1. Identifying Who’s Impacted
Payroll systems must flag which participants cross the $145,000 wage threshold each year and communicate that to recordkeepers. That determination has to be timely and accurate.
2. Handling Elections
Many plans use a “spillover” method: once a participant hits the elective deferral limit, additional amounts automatically go into catch-up. Under the new rule, those spillovers must switch to Roth if the participant is over the wage threshold. That requires systems to flip designations automatically.
3. Tracking Contributions Separately
Providers need clean separation between pre-tax and Roth contributions. Mixing them and trying to fix it later won’t cut it. Precision on the front end prevents compliance messes on the back end.
4. Correcting Errors
Mistakes will happen. If a high earner’s catch-up goes in as pre-tax, there are only two ways out: either reclassify through payroll before year-end, or process as an in-plan Roth conversion with appropriate reporting. Both methods are operational headaches. Providers should plan now for which correction path they’ll use.
5. Communication & Education
Many participants in this category have never contributed to Roth in a plan before. They need to understand the tax implications: pay taxes now, enjoy tax-free qualified withdrawals later. Providers have to arm sponsors with clear, simple education materials to get ahead of confusion.
The Rosenbaum Take
This is a regulation with real bite. For plan providers, it’s not enough to just “wait and see.” You’ll need to work closely with payroll, recordkeeping, and plan sponsors to ensure processes are aligned before 2026.
The risk isn’t just compliance failure. It’s the chaos that comes when participants get the wrong tax treatment, or when contributions have to be clawed back and reclassified after year-end. That’s when angry calls come in — and that’s when sponsors start looking for new providers.
My advice is simple: don’t wait. Test your systems now. Run mock scenarios. Draft your communication templates. Help your clients amend plan documents if Roth isn’t currently an option. The providers who are proactive will win trust. Those who lag will lose credibility.
The era of Roth-only catch-up for high earners is almost here. Providers who prepare early won’t just survive it — they’ll turn it into an opportunity to prove their value.