SECURE 2.0 Roth Catch-Up for High Earners: The Payroll Implementation Checklist

9/28/2026

SECURE 2.0 changed catch-up contributions for higher earners from a participant election into a payroll classification problem. Since the statutory rule took effect and the IRS's administrative transition period ended on December 31, 2025, any catch-up eligible participant whose prior-year Social Security wages from the employer exceed an indexed threshold must make their catch-up contributions as designated Roth contributions. The participant no longer chooses the tax treatment. Payroll has to determine it.

That puts the work squarely in payroll: identifying who is affected, switching the deferral type at the right point in the year, coding the W-2 correctly, and fixing the cases where the switch did not happen. This checklist walks through each step using the final Treasury regulations issued in September 2025. It goes deeper than the Roth catch-up sections of our 401(k) Plan Administration handbook and the annual retirement plan contribution limits post.

The Rule in One Paragraph

Code section 414(v)(7), added by section 603 of the SECURE 2.0 Act, provides that a catch-up eligible participant whose wages from the employer sponsoring the plan for the preceding calendar year exceeded the Roth catch-up wage threshold can make catch-up contributions only as designated Roth contributions. The statutory threshold was $145,000, indexed for inflation. For catch-up contributions made in 2026, the IRS set the threshold at $150,000 of 2025 wages in Notice 2025-67. The threshold that applies to 2026 wages for 2027 catch-ups has not been published yet, so do not build $150,000 into your 2027 logic.

The rule applies to 401(k), 403(b) and governmental 457(b) plans. It does not apply to SEP or SIMPLE IRA plans.

Key Dates

Date	What happened or applies
Taxable years beginning after Dec. 31, 2023	Statutory effective date of section 414(v)(7)
Through Dec. 31, 2025	IRS administrative transition period under Notice 2023-62; plans could continue pre-tax catch-ups
Sept. 16, 2025	Final regulations (T.D. 10033) published
Nov. 17, 2025	Final regulations effective
2026	Rule must be operated; a reasonable, good faith interpretation of the statute applies
Taxable years beginning after Dec. 31, 2026	Final regulations generally apply

 

Plans may apply the final regulations early, and many employers are using them for 2026 because they are the most defensible reading of the good faith standard. Collectively bargained plans and governmental plans have later regulatory applicability dates tied to the expiration of bargaining agreements and to legislative sessions, so confirm the date for any such plan you support.

Step 1: Identify Who Is Subject

Use Social Security Wages, Not Box 1

The final regulations define the wage test by reference to FICA wages under Code section 3121(a) for the Social Security tax, which the preamble identifies as the wages reported in Box 3 of Form W-2. Not Box 1 taxable wages, and not Box 5 Medicare wages.

The difference matters. Box 1 is reduced by pre-tax 401(k) deferrals and other pre-tax deductions, while Box 3 is not reduced by 401(k) deferrals. An employee with $160,000 of salary who defers heavily may show well under $150,000 in Box 1 and still be over the threshold in Box 3. Box 3 is also capped at the Social Security wage base, but because the wage base is far above the Roth catch-up threshold, the cap does not affect the test.

From the Employer Sponsoring the Plan

Only wages from the employer sponsoring the plan for the preceding calendar year count. Under the final regulations, that generally means the participant's common law employer. A plan may, but does not have to, provide that:

• Employers using a common paymaster are aggregated, and
• Employers in the same controlled group or affiliated service group are aggregated.

Without that plan language, an employee who moved between related companies mid-year is tested only on wages from the current employer. The regulations also give a safe harbor for successor employers after an asset purchase, letting the plan rely on the successor's Form W-2 in the year of the acquisition.

Who Is Not Subject

A participant with no FICA wages from the employer in the preceding year is not subject to the Roth catch-up requirement in the current year. The regulations give examples:

• New hires who had no wages from this employer last year
• Partners and other self-employed individuals whose income is self-employment income rather than wages
• Employees whose wages were subject to railroad retirement tax rather than FICA
• Certain state and local government employees whose services were excluded from Social Security coverage

For payroll, the practical instruction is simple: an employee hired during 2026 is not subject to the Roth catch-up requirement for 2026 at this employer, but may be for 2027 depending on their 2026 Box 3 wages.

Building the Annual List

1. After year-end payroll closes, pull Box 3 wages for every employee for the prior year.
2. Apply the plan's aggregation rules, if any.
3. Flag employees above the published threshold who will be age 50 or older by the end of the current year.
4. Share the list with the recordkeeper and confirm both systems agree.
5. Update the list when a Form W-2c changes an employee's Box 3 wages.

Under the final regulations, a plan can rely on a timely filed Form W-2 to determine whether the Roth catch-up rule applies. Our W-2 preparation guide covers the Box 3 rules, and the W-2c filing guide covers corrections.

Step 2: Decide What the Plan Will Do

Plans With a Roth Feature

If the plan already offers Roth deferrals, affected participants can make catch-ups as Roth. The open question is how the switch happens: by participant election, or automatically through a deemed Roth election.

Plans Without a Roth Feature

A plan is not required to add a Roth feature. But under the final regulations, if it does not, participants who are subject to the Roth catch-up requirement cannot make catch-up contributions at all. The regulations confirm that excluding them does not violate the catch-up universal availability rule. Participants who are not subject to the requirement can still make pre-tax catch-ups.

This is a settlor decision for the employer. If a plan has highly paid participants over 50 who rely on catch-ups, the employer should decide deliberately whether to add Roth rather than discover the problem when a participant hits the deferral limit.

Step 3: Configure the Deemed Roth Election

The final regulations let a plan treat an affected participant as having irrevocably designated catch-up contributions as Roth. A deemed election is the most reliable way to comply, because it does not depend on the participant acting.

A plan using a deemed Roth election must:

• Give the participant an effective opportunity to make a different election from the deemed one, such as stopping catch-up contributions
• Stop applying the deemed election within a reasonable time after the participant is no longer subject, or after an amended Form W-2 shows they were not subject

When the Switch Happens

In most plans, a deferral becomes a catch-up contribution when the participant's elective deferrals for the year exceed the section 402(g) limit, which is $24,500 for 2026. The regulations allow the plan to implement the deemed election once the participant's total deferrals reach that limit. As a plan option, the plan can count only pre-tax deferrals toward the trigger.

Payroll configuration typically needs:

• A Roth catch-up deduction code separate from the pre-tax code
• An accumulator for year-to-date deferrals that recognizes the 402(g) limit
• Logic that moves deferrals above the limit from pre-tax to Roth for flagged employees, in the same pay period the limit is crossed, including splitting a single paycheck's deferral between the two codes
• Recognition of the higher catch-up limit for participants aged 60 to 63, which is $11,250 for 2026, and the standard $8,000 catch-up for others age 50 and over

A participant whose Roth deferrals made earlier in the year already equal the catch-up limit has satisfied the rule. The regulations allow the plan to ignore those earlier Roth deferrals when deciding when to start the deemed election, which simplifies payroll, but they must be taken into account if a correction is later needed.

Practices and Procedures Are Required for Correction

To use the regulatory correction methods for catch-ups arising from the 402(g) limit, the plan sponsor or administrator must have practices and procedures designed to result in compliance when the deferral is made. For those catch-ups, that includes a deemed Roth election once deferrals exceed the limit. A plan that relies only on participant elections and has no deemed election may not be able to use the simplified corrections when something goes wrong.

Step 4: Get the W-2 and Taxes Right

Roth catch-up contributions change the tax treatment of every dollar affected:

Item	Pre-tax 401(k) deferral	Roth 401(k) deferral
Federal income tax withholding	Excluded from wages	Included in wages
Social Security and Medicare	Subject	Subject
Form W-2 Box 1	Excluded	Included
Form W-2 Boxes 3 and 5	Included	Included
Form W-2 Box 12 code	D	AA

 

For 403(b) plans, Roth deferrals use code BB, and governmental 457(b) Roth deferrals use code EE.

The practical effect: when a flagged employee crosses the 402(g) limit, their federal taxable wages go up for the rest of the year and their take-home pay goes down. Tell affected employees in advance, so the change in net pay does not show up as a payroll error ticket. State income tax treatment follows each state's rules, so check your states' treatment of Roth deferrals. Our guide to pre-tax vs. post-tax deductions covers how deduction coding drives these boxes.

Step 5: Know the Correction Methods

If a participant subject to the rule makes a pre-tax catch-up contribution anyway, the final regulations call it a section 414(v)(7) failure and permit two corrections. The plan must use the same method for similarly situated participants and cannot pick the method based on investment returns.

Form W-2 Correction Method

Transfer the catch-up contribution, adjusted for earnings and losses, from the participant's pre-tax account to their Roth account, and report the contribution (without the earnings) as a Roth deferral on the participant's Form W-2 for the year it was originally excluded from income. This method is available only if the Form W-2 for that year has not yet been filed or furnished to the participant. In practice, that means catching the error before January W-2 production.

In-Plan Roth Rollover Method

Directly roll over the pre-tax deferrals that should have been Roth, adjusted for earnings and losses, from the pre-tax account to the Roth account. The rollover is reported on Form 1099-R for the year it occurs. This is the method used once W-2s have gone out.

Correction Deadlines

• For catch-ups arising because deferrals exceeded a statutory limit (such as the 402(g) limit), corrective steps must be completed by the last day of the taxable year following the year of the deferral. For excess deferrals tied to the 402(g) limit, if correction is not completed by April 15 of the following year, the separate excess-deferral tax rules apply.
• For catch-ups arising because deferrals exceeded an employer-provided plan limit or the ADP test limit, the deadline is the last day of the plan year following the plan year of the contribution.

When No Correction Is Needed

• Small amounts: if the pre-tax amount that should have been Roth is $250 or less, the failure can be disregarded.
• Late-discovered wages: if the participant became subject to the rule only because an amended Form W-2 raised prior-year wages over the threshold after the correction deadline, no correction is required.

Step 6: Coordinate With Nondiscrimination Testing

Catch-up status can also arise after the year ends. When a plan fails the ADP test and recharacterizes an HCE's excess deferrals as catch-up contributions, those amounts become catch-ups and the Roth requirement applies to them if the HCE is subject to it. The Roth catch-up wage threshold is slightly lower than the HCE compensation threshold, so some non-HCEs are subject to the Roth rule, and some HCEs, such as those with no prior-year FICA wages, are not. Do not use the HCE list as a substitute for the Roth catch-up list.

The Payroll Implementation Checklist

6. Confirm whether the plan has a Roth feature, and document the employer's decision if it does not.
7. Confirm whether the plan document aggregates wages across related employers or common paymasters.
8. Pull prior-year Box 3 wages after year-end close and build the flagged list each January.
9. Confirm the list matches the recordkeeper's records.
10. Set up a separate Roth catch-up deduction code and W-2 Box 12 mapping.
11. Configure the 402(g) accumulator and the pre-tax-to-Roth switch, including split paychecks.
12. Configure the deemed Roth election and the process for participants to make a different election.
13. Load the age 60 to 63 catch-up limit for eligible participants.
14. Notify affected employees before their net pay changes.
15. Reconcile Roth and pre-tax catch-ups before W-2 production, so any error can use the W-2 correction method.
16. Update the list after any W-2c that changes Box 3 wages.
17. Calendar the correction deadlines and the new threshold announcement each fall.

Most of this fits into the year-end and new-year cycle covered in our guide to updating payroll for the new tax year.

Frequently Asked Questions

What is the SECURE 2.0 Roth catch-up rule?

Under Code section 414(v)(7), added by SECURE 2.0, participants age 50 or older whose prior-year Social Security wages from the employer sponsoring the plan exceed an indexed threshold can make catch-up contributions only as Roth contributions. For 2026 catch-ups, the threshold is $150,000 of 2025 wages. The rule applies to 401(k), 403(b) and governmental 457(b) plans, not to SEP or SIMPLE IRA plans. Participants below the threshold can still choose pre-tax or Roth catch-ups if the plan allows.

When does the Roth catch-up requirement take effect?

The statute applies to taxable years beginning after 2023, but IRS Notice 2023-62 gave plans an administrative transition period through December 31, 2025. Starting in 2026, plans must operate the rule using a reasonable, good faith interpretation. The final regulations published in September 2025 generally apply to taxable years beginning after December 31, 2026, with later dates for certain collectively bargained and governmental plans. Plans may apply the final regulations early.

Which wages count toward the Roth catch-up threshold?

Social Security wages under Code section 3121(a), reported in Box 3 of Form W-2, from the employer sponsoring the plan for the preceding calendar year. Box 1 taxable wages and Box 5 Medicare wages are not used. A plan may choose to aggregate wages from related employers in a controlled group or employers using a common paymaster, but it must say so in the plan document. Employees with no FICA wages from the employer in the prior year are not subject.

What if our 401(k) plan does not offer Roth contributions?

The plan is not required to add a Roth feature. But if it does not, participants who are subject to the Roth catch-up requirement cannot make catch-up contributions at all, while participants below the threshold can continue pre-tax catch-ups. The final regulations confirm this does not violate the universal availability rule for catch-ups. Employers with highly paid participants over 50 should decide deliberately whether to add Roth.

What is a deemed Roth catch-up election?

It is a plan provision that automatically treats an affected participant's catch-up contributions as Roth, without requiring the participant to elect it. The participant must be given an effective opportunity to make a different election, such as stopping catch-ups, and the deemed election must stop applying within a reasonable time after the participant is no longer subject. Having a deemed election in place is part of the practices and procedures that make the regulatory correction methods available.

How are Roth catch-up mistakes corrected?

The final regulations allow two methods. If Forms W-2 have not yet been filed or furnished, the plan can move the contribution and earnings to the Roth account and report it as Roth on the W-2. Otherwise, it can use an in-plan Roth rollover reported on Form 1099-R. Failures of $250 or less need no correction. Deadlines depend on why the deferral was a catch-up, generally the end of the following taxable year or plan year.

Make the Switch Automatic

The Roth catch-up rule is now a payroll process. Employers that build the annual list, configure the deemed election and reconcile before W-2s go out will rarely need a correction. For the plan rules behind each step, the 401(k) Training and Certification Program covers 401(k) administration from the payroll side, and the 401(k) Procedures Manual and e-Alerts helps keep the team current as the IRS publishes each year's threshold.