The IRS released final regulations on September 16, 2025, that significantly impact catch-up contributions for employees making salary deferrals into 401(k), 403(b), or governmental 457(b) retirement plans. Catch-up contributions are amounts that employees who are age 50 or older may contribute to tax-favored workplace retirement plans above and beyond other IRS or plan limits.
Catch-up contributions are allowed when a participant’s contributions exceed a statutory limit, such as the annual limit on salary deferrals. For 2025, the general limit on employee salary deferrals is $23,500 (projected to increase to $24,000 for 2026). Catch-up contributions are also allowed if a participant’s contributions exceed the annual limit on annual additions (i.e., employee and employer contributions, plus allocations of forfeitures). For 2025, the annual addition limit is $70,000 (projected to increase to $72,000 or $73,000 for 2026). Catch-up contributions are also allowed if a participant’s contributions exceed a limit set out in the plan document or if nondiscrimination testing failures are recharacterized as catch-up contributions.
For 2025, the standard catch-up contribution limit is $7,500 (projected to increase to $8,000 for 2026). The changes introduced by the final regulations are designed to clarify and implement provisions from the SECURE 2.0 Act, which was enacted to enhance retirement savings opportunities.
The final regulations address the new “age and wage” SECURE 2.0 catch-up rules that apply starting January 1, 2026. Under those rules, employees age 50 or older earning over $145,000 (indexed) in the prior year who make catch-up contributions in the current year must treat those contributions as Roth (after-tax) instead of pre-tax contributions. Previously, employees could elect to make catch-up contributions on either a pre-tax or Roth basis, depending on plan design. Generally, distributions of Roth amounts (including any earnings thereon) are tax-free if certain other requirements are met. Note that some plans allow non-Roth after-tax contributions, but the mandatory Roth treatment for catch-up contributions does not affect those non-Roth after-tax contributions.
The regulations also discuss another new SECURE 2.0 rule that, starting January 1, 2025, allows participants who are age 60, 61, 62, or 63 during the calendar year to make increased “super” catch-up contributions, regardless of their income. For 2025, the super catch-up limit is $11,250 for 401(k), 403(b), and governmental 457(b) plans, which is projected to increase to $12,000 for 2026. Smaller limits apply to SIMPLE plans. Note that if the participant earns over $145,000 (indexed) in the prior year, then the super catch-ups must be Roth (after-tax, not pre-tax). Plans are not required to offer super catch-ups.
These changes are designed to help older workers boost their retirement savings in the years leading up to retirement. Below is a summary of the key provisions and practical steps employers should take.
Key Highlights of the Mandatory Roth Catch-Up Rules
High Earners
Who’s affected? Employees aged 50 or older whose prior calendar year FICA wages exceed $145,000 (indexed for inflation, with increases required to be made in $5,000 increments). The $145,000 (indexed) is not prorated for partial years of employment. For example, an employee who is hired on October 1 at a $200,000 annual salary will not be subject to the Roth catch-up rule in the following year because the employee’s FICA wages for the look-back calendar year are only $50,000.
Employers would use Box 3 (Social Security wages) of the 2025 Form W-2 to determine if an employee’s 2025 wages trigger the new rule. Note that this is a new data point that employers and plans have never had to track before.
Self-employed individuals who do not have FICA wages (such as partners who get guaranteed income reported on a K-1 and not on Form W-2) are not subject to the mandatory Roth catch-up requirement.
What’s required? Catch-up contributions for these employees must be made on a Roth (after-tax) basis, not pre-tax. Note that this rule is based on the calendar year, not on the plan year.
Which plans are affected? Generally, 401(k), 403(b), and governmental 457(b) plans are subject to the new Roth catch-up mandate, but SIMPLE IRAs and SEP IRAs are not subject to the new rules. All employees with a SIMPLE IRA plan, regardless of their income, can continue to make catch-up contributions on a pre-tax basis. SEP IRAs are funded solely by employer contributions and do not allow employee elective deferrals or catch-up contributions.
Administrative Relief and Transition Period
When are the New Rules Effective? The IRS has provided a transition period for the first two taxable years beginning after December 31, 2023, allowing plan sponsors additional time to update payroll systems and plan documents. Technically, the final regulations are not effective until taxable years beginning after December 31, 2026, but the statutory provision is effective for taxable years beginning after December 31, 2025, for most employers (collectively bargained and governmental plans have until 2027), since the IRS has not extended the administrative transition period. Therefore, most employers must apply a reasonable, good faith interpretation of the SECURE 2.0 change in the law during the 2026 gap year.
What Does Reasonable, Good Faith Mean? Ignoring the requirement for mandatory Roth catch-up contributions would not be a reasonable, good faith interpretation. In the final regulations, the IRS said it would be a reasonable, good faith interpretation if an employer used Box 5 of Form W-2 (wages for Medicare taxes) instead of Box 3 of Form W-2 (wages for Social Security taxes). That makes sense, because the Social Security wage base cap applies to Box 3 but not to Box 5, and the formal announcement of the annual Social Security wage base cap could be delayed.
What Should Employers Do Now? Employers are encouraged to use this period to coordinate with payroll providers and recordkeepers to verify compliance.
To ease the administrative burden of complying with the new rule, many payroll providers and recordkeepers will use a “deemed Roth catch-up contribution election” whereby any employee who is subject to the mandatory Roth catch-up rules is deemed to have irrevocably designated any elective deferrals that are catch-up contributions as designated Roth contributions. In that case, the amount of the Roth catch-up contribution will be treated by the employer as taxable wages. Employees must be provided with an effective opportunity to make a new election that is different from the deemed election. These provisions must be included in the plan document no later than the required plan amendment deadline (see discussion below).
Other developing compliance methods include “spill over” elections (automatically converts to Roth when necessary for all participants), separate elections, or disallowing Roth elections. There are pros and cons for each of those options.
Employers need to consider what will happen to existing catch-up elections and whether new elections will be advisable.
The final rules confirmed that plans are not permitted to require that all catch-ups must be Roth. That means that participants age 50 or older and earning less than $145,000 (indexed) in the prior calendar year are permitted to choose whether their catch-up contributions will be pre-tax or Roth.
Complexities arise when an employer has multiple workplace retirement plans or is part of a controlled or affiliated service group. Generally, the relevant employer for determining the employee’s FICA wages is the common law employer of the plan participant. The final regulations address many of those issues, but careful thought and planning is needed, raising novel payroll and plan administration questions that have never been addressed previously.
How to Correct Failures to Comply? The final regulations set out two methods for correcting failures to comply with the mandatory Roth catch-up rules – either (i) making tax corrections on participants’ Form W-2 or (ii) making an in-plan Roth rollover, so long as the correction is made no later than the last day of the tax year following the tax year for which the elective deferral was made. However, no correction is needed if the amount of the pre-tax elective deferral that was required to be a Roth catch-up does not exceed $250. Further, no correction is needed if the participant became subject to the Roth catch-up rule based solely on wages reported on an amended Form W-2 after the last day of the year after the year for which the deferral was made. Note that all similarly situated participants must be treated the same, so if a plan corrects Form W-2 for one participant, it cannot use an in-plan Roth rollover for other participants. As a prerequisite to using either correction method, the plan must have in place practices and procedures designed to result in compliance with the mandatory Roth catch-up rules at the time the deferral is made.
Key Provisions of the Optional Higher Catch-Up Rules for Ages 60-63
Higher Catch-Up Limits for Ages 60–63
- Who qualifies? Participants who turn 60, 61, 62, or 63 during the calendar year. Note that this rule is based on the calendar year, not on the plan year.
- What’s new? For these participants, the annual catch-up contribution limit is increased above the standard age 50 catch-up limit.
- 2026 limits: For calendar years beginning in 2025, the increased catch-up limit is the greater of: (i) $10,000 (indexed for inflation), or (ii) 150% of the regular age 50 catch-up limit for the year (also indexed).
Plans Covered
- Applies to 401(k), 403(b), and governmental 457(b) plans. If any plans within the controlled group provide for super catch-up contributions, then all plans within the controlled group must also allow them. This is known as the “universal availability” rule for super catch-ups.
- SIMPLE IRA and SIMPLE 401(k) plans have a separate, increased catch-up limit for ages 60–63.
Coordination with Standard Catch-Up
- Participants age 50 and older may make catch-up contributions, but those age 60–63 may use the higher limit to make “super” catch up contributions.
- The increased limit applies only for the calendar years in which the participant is age 60, 61, 62, or 63.
Plan Amendment Deadlines
- Most plans must be amended to reflect the new Roth and super catch-up requirements by December 31, 2026, regardless of whether they operate on a fiscal year basis. Later deadlines apply to collectively bargained plans (December 31, 2028) and governmental plans (December 31, 2029). The final regulations clarified that amending a fiscal year safe harbor plan midyear to comply with the new catch-up rules is not prohibited.
- Employers should work with their plan advisors and legal counsel to make timely amendments. Employers should verify that payroll and recordkeeping systems are updated to track participants’ ages and apply the correct limits.
Action Steps for Employers
- Review Employee Data: Identify employees who are age 50 and older during the plan year and who are likely to exceed the $145,000 (indexed) FICA wage threshold and communicate upcoming changes to catch-up contribution rules. Review plan data to determine which employees will be eligible for the increased super catch-up limits each year.
- Update Payroll and Plan Systems: Coordinate with payroll providers and recordkeepers to confirm that systems can track eligibility and process Roth catch-ups (based on ages and wages) and super catch-ups (based on age only). Coordination among stakeholders and proactive monitoring of contribution limits is critical. Employers will need to manage plan design variability across plans within its controlled or affiliated service group and across payroll providers. For example, employers using multiple payroll systems and third-party administrators might want to arrange standing, periodic meetings to confirm consistent application of Roth and super catch-up contributions across all vendors.
- Communicate with Participants: Develop clear communications for affected employees, explaining the Roth catch-up requirement, the optional super catch-ups, and their potential impact on their retirement savings.
- Amend Plan Documents: Work with plan advisors to draft and adopt necessary plan amendments before the deadline.
- Monitor Guidance: Stay alert for any additional IRS guidance or clarifications, especially regarding operational issues and reporting requirements.
Frequently Asked Questions
Plans must be amended to allow Roth contributions if catch-up contributions are offered to high earners. If the plan does not allow Roth contributions, then high earners cannot make catch-up contributions. All eligible participants must have the opportunity to elect Roth catch-ups (in other words, the plan cannot limit Roth catch-ups only to participants who are age 50 or older and make above the $145,000 wage limit, as adjusted).
The threshold is based on prior calendar year FICA wages, including all compensation subject to Social Security taxes, regardless of whether the plan operates on a fiscal year basis.
Noncompliance may result in plan disqualification. Employers should prioritize timely updates and communication.
No, the special 15-year catch-up contributions to 403(b) plans are not affected by the new mandatory Roth catch-up rule.
No, the special catch-up contributions to 457(b) plans during the last three years of employment before retirement are not affected by the new Roth catch-up rules.
No. The increased limit applies only to participants who are age 60, 61, 62, or 63 during the calendar year.
Yes, provided the plan allows Roth contributions and the employee’s wages do not exceed the $145,000 (indexed) threshold, which would trigger the Roth catch-up mandate.
The increased super catch-up limit applies for the entire calendar year in which the participant turns 60, 61, 62, or 63.
Conclusion
The IRS’s final catch-up regulations represent a significant change for retirement plan administration, particularly for employers with employees who are age 50 or older and earning over $145,000 (indexed) or age 60-63, regardless of income. The new rules impose administrative burdens and complexities for employers, payroll providers, and plan administrators. Early preparation and proactive communication are essential to support compliance and assist employees to enhance their retirement savings. Employers should act now to update systems, communicate with employees, and prepare to amend plan documents to ensure compliance and maximize participant benefits.
For more information or assistance implementing these changes, please contact your BDO advisor or reach out to BDO’s Global Employer Services team.