With that framing, here’s a breakdown of the rules.

Q1: When do the law and regulation apply? In other words, why is there a split between 2026 and 2027?

A1: The statute and an administrative extension make the Roth catch-up requirement effective for tax years beginning on or after January 1, 2026. But the final regulation specifies that its provisions apply to catch-up contributions made in tax years beginning after December 31, 2026—so for calendar year plans, the regulation fully applies in 2027. (Since almost all 401(k) plans and individuals are on the calendar year, the rest of this article discusses the rules in terms of calendar years.) 

During 2026, plan sponsors are allowed to comply using a reasonable, good faith interpretation of the statutory provisions. Unfortunately, some may be thinking that good faith compliance means that the law doesn’t require detailed compliance in 2026. That isn’t the case. Plans must literally comply with the terms of the law in 2026. The good faith exception will likely apply only where the law is unclear. The regulation’s preamble gives an example of a “good faith” compliance issue (in typical IRS regulatory language, which is difficult to decipher):

For example, with respect to contributions in taxable years prior to the applicability date of the final regulations, this standard [good faith compliance] would be met if the determination of whether a participant’s FICA wages for the preceding calendar year exceeded the Roth catch-up wage threshold is made by referencing the FICA taxes imposed by sections 3101(b) and 3111(b) (rather than sections 3101(a) and 3111(a)).

In other words, the statute wasn’t clear on which definition of FICA wages was to be used for determining the compensation threshold to be higher-paid. If, in 2026, a plan used the wrong FICA box on the Form W-2 for that purpose, that wouldn’t disqualify the plan because it acted in good faith in resolving this unclear issue. That is a narrow exception that would qualify as good faith and suggests that the IRS doesn’t intend for good faith to be broadly interpreted. 

Q2: Which types of retirement plans are covered by this law and regulation?

A2: The Roth catch-up rule applies to what the regulation calls “applicable employer plans,” including:

• 401(k) plans (other than SIMPLE 401(k)s)
• 403(b) plans
• Governmental 457(b) plans

It also applies to SIMPLE and SEP plans on a more limited basis. 

The rest of this article discusses the rules in the context of 401(k) plans (though the same principles often map to 403(b) or governmental 457(b) plans).

Q3: Which employees are subject to Roth treatment of their catch-up contributions? How is that determined?

A3: The rule applies to participants who:

1. Are age 50 or older (i.e., eligible to make catch-up contributions); and
2. In the prior calendar year (e.g., 2025 wages for 2026 Roth treatment), had FICA wages from the employer maintaining the plan above a threshold (initially $145,000, but indexed in the future)

 

Because the trigger is tied to FICA wages, participants who don’t have FICA wages aren’t subject to this Roth catch-up requirement.

 

The regulation confirms that the relevant wages are FICA wages, which appear in Box 3 of the Form W-2 (Social Security wages). Thus, wages in Box 5 (Medicare wages) shouldn’t be used for determining whether an employee is subject to this Roth treatment for catch-up contributions. 

Because the trigger is tied to FICA wages, participants who don’t have FICA wages (e.g., whose income is self employment income, such as sole proprietors or partners) aren’t subject to this Roth catch-up requirement. 

Examples:

• A 52-year-old W-2 employee with Box 3 wages of $160,000 in 2025: any catch-up contributions made in 2026 would have to be Roth.
• A 55-year-old contractor whose only income is self-employment (Schedule C) and who has no W-2 wages: the catch-up contributions aren’t subject to the Roth requirement, because there are no FICA wages to measure.

As a word of caution, “higher-paid” participants are different than “highly compensated” employees (HCEs). While there is overlap, the higher-paid definition will capture some participants who aren’t HCEs. The HCE definition is used for discrimination testing, while the higher-paid definition is only for this Roth catch-up purpose.

Q4: What if a 401(k) plan doesn’t currently allow Roth contributions? What must the plan do?

A4: If a plan doesn’t allow Roth deferrals, it must be amended to allow Roth catch-up contributions—at least for catch-up eligible participants. Otherwise, the higher-paid participants won’t be able to make catch-up contributions. 

In other words: if the plan doesn’t allow for Roth contributions, an eligible participant whose prior year FICA wages exceed the threshold would be barred from making catch-up contributions. 

On a practical level, while these rules only require that all catch-up eligible participants (i.e., ages 50 and older) be allowed to make Roth deferrals in order for the higher-paid participants to be able to make catch-up contributions, most plan sponsors are likely to allow all participants to use the Roth option.

Note that a plan can’t require that the participants who aren’t higher-paid make the catch-up deferrals as Roth contributions.

Q5: Are there any additional key issues or quirks in the regulation that advisors should know?

A5: Yes—there are a few important wrinkles:

• Deemed Roth elections: A plan may include a provision that when a participant becomes subject to the Roth catch-up requirement (because they exceed the FICA wage threshold), their catch-up contributions are deemed Roth unless they affirmatively opt otherwise. But the plan must give participants notice and opportunity to elect differently. In effect, this negative election process allows a plan to continue using existing deferral elections, unless a new election form is filed by a higher-paid participant.
• “Super” catch-up contributions: The new rules apply to both regular catch-up contributions and to the increased catch-up limits for participants ages 60, 61, 62, and 63.
• Correction rules: If a catch-up contribution is mistakenly made pre-tax when it should have been Roth, the regulations provide correction mechanisms (e.g., via W-2 correction, in-plan Roth rollover) under specified timelines.

 

Concluding Thoughts

Financial professionals should work with their plan sponsor clients to:

• Ensure that they are aware of these new rules and make any needed decisions, e.g., whether to add Roth accounts to the plan.
• Help those plan sponsors understand the steps involved:

– Coordination with payroll services;

– Coordination with recordkeepers;

– Communication materials to catch-up eligible participants and new deferral election forms;

– Education to those participants about the considerations for Roth deferrals (e.g., the tax consequences in the year of deferral and upon withdrawal and the avoidance of required minimum distribution (RMDs) on Roth accounts).

Time is of the essence. These rules will be in effect in just a few months.