On September 15, 2025, the Internal Revenue Service (IRS) issued final regulations implementing provisions of the SECURE 2.0 Act related to age 50 catch-up contributions under employer-sponsored retirement plans. Importantly, the IRS did not extend the administrative transition period with respect to the Roth catch-up requirement for higher earners, which must still be implemented by 2026. The final rules nonetheless offer plan administrators helpful—albeit last minute—guidance on several aspects of administration, including operation of the deemed Roth catch-up election, an optional employer aggregation rule, and greater flexibility for corrections.
Roth Catch-Up Requirement
Higher earner participants must designate their age 50 catch-up contributions as Roth contributions under amendments to Internal Revenue Code (Code) Section 414(v) made by Section 603 of the SECURE 2.0 Act. A “higher earner participant” is a participant whose FICA wages from the employer sponsoring the plan exceeded $145,000 (indexed after 2024) for the preceding year.
The Roth catch-up requirement under Section 603 applies to 401(k), 403(b), and governmental 457(b) plans, effective for taxable years beginning after December 31, 2023. However, in Notice 2023-62, the IRS postponed the deadline for compliance to taxable years beginning after December 31, 2025, and provided that taxable years 2024 and 2025 will be regarded as an administrative transition period. The IRS issued proposed regulations on Section 603 earlier this year, which we discussed in a previous article.
Highlights from Final Regulations
The final regulations contain several modifications and clarifications to the proposed rules.
Identifying higher earner participants
- The FICA wage threshold for identifying higher earner participants is defined by wages reported in Box 3 of Form W-2 and not Box 5. Employers report Social Security wages in Box 3 and Medicare wages in Box 5. Many state and local government employees are exempt from Social Security (but not Medicare) and, therefore, do not have Box 3 wages. This approach is consistent with the IRS’ position in Notice 2023-62 and the proposed rules that the Roth catch-up requirement does not apply to public employees who are exempt from Social Security.
- For the purposes of determining a participant’s FICA wages received from the employer sponsoring the plan, the term “employer” generally refers solely to the participant’s common law employer. However, the final regulations add an optional aggregation rule, under which a plan may provide for the aggregation of wages by one or more employers using a common paymaster or by one or more employees in the same controlled group.
Plan Drafting Note: In multiple employer plans and plans with related participating employers, each participating employer will be treated separately for purposes of determining whether a participant exceeds the FICA wage threshold of a higher earner participant unless the plan is specifically amended to aggregate employers under a common paymaster or in the same controlled group.
Deemed Roth catch-up elections and new correction methods
The proposed rules permitted plans to adopt a deemed Roth catch-up election to automatically designate catch-up contributions as made on a Roth basis for higher earner participants. A deemed Roth catch-up election provision is required for plans to take advantage of new correction methods for Roth catch-up operational failures. The final regulations address several questions raised by commenters about the operation of the deemed Roth catch-up election and correction methods.
- Under the proposed rules, a plan could apply a deemed Roth catch-up election when a higher earner participant’s elective deferrals reached the Code Section 401(a)(30) limit, but only to the extent that the participant had not previously made Roth elective deferrals during the taxable year equal to the applicable catch-up limit. For administrative ease, the final regulations permit a plan to apply the deemed election to a higher earner participant when the participant’s elective deferrals for the taxable year have reached the Code Section 401(a)(30) limit without regard to any designated Roth contributions that the participant made earlier in the taxable year. In other words, a plan is not required to monitor individual participants’ prior Roth contributions for the taxable year and may implement a deemed Roth election uniformly for all higher earner participants once the Code Section 401(a)(30) limit is reached.
Plan Drafting Note: Plan administrators will need to determine which deemed Roth catch-up election design is best supported by their administrative processes. Plans will need to be amended to conform to operations on this point.
- Unchanged from the proposed rules, a deemed election provision is conditioned on the participant having an effective opportunity to make a new election that is different than the deemed election. The commentary to the final regulations makes clear that whether a participant has an effective opportunity to make a new election is determined under the same facts and circumstances standard that applies to elective deferrals generally. To satisfy this requirement, plan sponsors may wish to review and update as necessary plan materials that communicate elective deferral rights, including summary plan descriptions, universal availability notices, safe harbor notices, and website content.
- The Roth catch-up requirement does not directly apply to special catch-up contributions permitted under 403(b) and governmental 457(b) plans. To coordinate these limits, the final regulations clarify that the deemed Roth catch-up election can apply to a higher earner participant under a 403(b) plan when the participant’s elective deferrals for the taxable year have reached the Code Section 401(a)(30) limit, increased by the amount available under the special 403(b) catch-up limit, if any. Similarly, the deemed Roth catch-up election can apply to a higher earner participant under a governmental 457(b) plan when the amount deferred for the taxable year exceeds the special 457(b) limit for the participant.
- The final regulations provide additional flexibility regarding the special correction methods for Roth catch-up operational failures. The proposed rules set forth two new correction methods for Roth catch-up failures—a W-2 correction method and an in-plan Roth rollover correction method—each of which corrects the failure by redesignating pre-tax contributions made in error as Roth contributions. These methods are available to plans that adopt a deemed Roth catch-up election.
The proposed rules required a plan to apply the same correction method for all higher earner participants for the same plan year. Under the final regulations, a plan is required only to apply the same correction method for similarly situated participants (which cannot be based on investment performance). The final regulations also provide that a Roth catch-up failure is not required to be corrected when either (i) the amount of the pre-tax deferral that was required to be designated as a Roth deferral does not exceed $250 or (ii) the participant was determined to be a higher earner participant due to a FICA wage adjustment made after the deadline for correction. Additionally, the final regulations clarify that a plan may use the in-plan Roth rollover correction method even if the plan does not permit participants to elect in-plan rollovers independent of the correction.
Other notable guidance
- The Roth catch-up requirement will not apply with respect to Puerto Rico residents under a dual-qualified plan before such time that the Puerto Rico Code is amended to provide for designated Roth contributions. This is a helpful change from the proposed rules, which would have required plans that are qualified under both the Internal Revenue Code and the Puerto Rico Code to permit higher earner participants who are Puerto Rico residents to make after-tax contributions in satisfaction of the Roth catch-up requirement.
- Several provisions outlined in the final regulations—including optional employer aggregation rules and adoption of a deemed Roth catch-up election—require a plan amendment. Although the final regulations do not address a deadline for the plan amendment, the IRS reminds plan sponsors in the commentary that Notice 2024-2 generally extended the deadline to December 31, 2026 (December 31, 2029, for governmental plans) to amend plans for all required and discretionary changes under SECURE 2.0 and any regulations thereunder. Accordingly, amendments adopted by the applicable deadline to implement the Roth catch-up requirement can be effective retroactively to January 1, 2026, provided the plan operates in conformance with such terms.
- Separate from the Roth catch-up mandate, the IRS also finalized its proposed rule to implement the higher catch-up limits available to participants who are ages 60 to 63 under Section 109 of the SECURE 2.0 Act. The IRS finalized the proposed rule with minor modifications.
Applicability Dates for Final Regulations
As noted above, the statutory requirement for higher earner participants to make Roth catch-up contributions applied for taxable years beginning after December 31, 2023, but the IRS delayed the implementation deadline until taxable years beginning after December 31, 2025, under an administrative transition period. The final regulations do not extend the administrative transition period.
The final regulations generally apply for taxable years beginning after December 31, 2026 (or, if later for governmental plans, the first taxable year beginning after the close of the first regular legislative session of the legislative body with authority to amend the plan that begins after December 31, 2025). Until the final regulations apply, plans are subject to a reasonable, good faith interpretation of the statutory provisions. Plans also may apply the final regulations early.
Next Steps
While many plan administrators were hoping for additional time, the final regulations confirm that plans must be in good faith compliance with the Roth catch-up contribution requirement starting in 2026. Employers and retirement systems will need to consider the following as they prepare for implementation:
- Review payroll systems to ensure accurate tracking of FICA wages;
- Determine whether the plan will adopt an optional aggregation rule for FICA wages;
- Consider adopting a deemed Roth catch-up election provision and determine which design approach is best supported by the plan’s administrative processes;
- Review plan materials to ensure the Roth catch-up rules for higher earner participants (including application of a deemed election) are adequately communicated to participants;
- Update correction procedures for noncompliant contributions, including the special correction methods for plans that adopt a deemed Roth catch-up provision;
- Coordinate with recordkeepers and payroll providers to ensure accurate tax reporting and implementation of deemed Roth catch-ups; and
- Document plan operation and accurately reflect it in a plan amendment that is adopted prior to the SECURE 2.0 amendment deadline.
