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\u2019s 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.<\/p>\n
For plan providers \u2014 whether you\u2019re a TPA, advisor, payroll vendor, or recordkeeper \u2014 this isn\u2019t just another technical tweak. It\u2019s a sweeping operational shift. Let\u2019s break it down.<\/p>\n
What\u2019s Changing<\/strong><\/p>\n 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.<\/p>\n 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 \u2014 and making sure systems handle the difference without error.<\/p>\n The Operational Pressure Points<\/strong><\/p>\n 1. Identifying Who\u2019s Impacted <\/strong><\/p>\n 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.<\/p>\n 2. Handling Elections<\/strong><\/p>\n Many plans use a \u201cspillover\u201d 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.<\/p>\n 3. Tracking Contributions Separately <\/strong><\/p>\n Providers need clean separation between pre-tax and Roth contributions. Mixing them and trying to fix it later won\u2019t cut it. Precision on the front end prevents compliance messes on the back end.<\/p>\n 4. Correcting Errors <\/strong><\/p>\n Mistakes will happen. If a high earner\u2019s 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\u2019ll use.<\/p>\n 5. Communication & Education<\/strong><\/p>\n 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.<\/p>\n The Rosenbaum Take<\/strong><\/p>\n This is a regulation with real bite. For plan providers, it\u2019s not enough to just \u201cwait and see.\u201d You\u2019ll need to work closely with payroll, recordkeeping, and plan sponsors to ensure processes are aligned before 2026.<\/p>\n The risk isn\u2019t just compliance failure. It\u2019s 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\u2019s when angry calls come in \u2014 and that\u2019s when sponsors start looking for new providers.<\/p>\n My advice is simple: don\u2019t wait. Test your systems now. Run mock scenarios. Draft your communication templates. Help your clients amend plan documents if Roth isn\u2019t currently an option. The providers who are proactive will win trust. Those who lag will lose credibility.<\/p>\n The era of Roth-only catch-up for high earners is almost here. Providers who prepare early won\u2019t just survive it \u2014 they\u2019ll turn it into an opportunity to prove their value.<\/p>\n <\/span><\/p>","protected":false},"excerpt":{"rendered":" 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\u2019s final regulations, higher-earning participants who want to make catch-up contributions will only be able to … Continue reading