The SECURE Act 2.0 introduced a new requirement.
Catch-up contributions made by Highly Paid Individuals (HPIs) must be treated as Roth contributions.
How must HPI Catch-Up Contributions be treated under the new rules?
Starting in 2026, HPIs must make any catch-up contributions on a Roth (after-tax) basis. Plans are allowed to have a deemed election under which all HPIs are treated as if they elected to have any catch-up contribution treated as Roth. This enables the plan to automatically convert pre-tax catch-up contributions to Roth. However, HPIs must be given the opportunity to elect otherwise (e.g. have their excess deferrals distributed as taxable income instead of reclassified as Roth).
What is a Highly Paid Individual (HPI)?
A Highly Paid Individual (HPI) for the 2026 plan year is an employee whose FICA compensation (shown in Box 3 of Form W-2) exceeded $150,000 from their current employer in 2025. The $150,000 wage threshold is indexed for inflation, meaning the limit may increase each year based on cost-of-living adjustments determined by the IRS. Owners of sole proprietorships and partners in partnerships are generally not subject to FICA taxes and, therefore, are not considered HPIs under this rule.
What is a Catch-Up Contribution?
A catch-up contribution allows participants who turn age 50 or older during the calendar year to defer additional amounts beyond the regular annual deferral limit under Internal Revenue Code §402(g). For 2026, participants who turn 50 or older can defer up to $8,000 above the standard deferral limit. Participants who attain ages 60, 61, 62, or 63 may be eligible for a “enhanced catch-up”—a higher limit available only in those years. For 2026, this enhanced catch-up amount is $11,250 rather than $8,000.
For all the latest annual contribution limit information, see our Annual Plan Limits Chart.
If an Error Is Made, How Is It Corrected?
If a HPI’s catch-up contribution is mistakenly made as pre-tax instead of Roth, there are two methods of correction. The plan may convert the pre-tax amount and applicable earnings to Roth and report the excess contribution (without earnings) as Roth on the W-2 form. Alternatively, an in-plan Roth rollover may be used to move the excess contribution and earnings to the Roth account, and the amount is reported as taxable income on Form 1099-R in the year of the rollover.
What Action Is Required?
Plan sponsors should begin preparing now to comply with the 2026 Roth catch-up requirement. Recommended next steps include:
- Coordinate with your payroll provider to ensure Roth deferrals are enabled, and catch-up contributions for HPIs are automatically coded as Roth.
- Update payroll and recordkeeping systems to identify HPIs based on prior-year FICA wages.
- Communicate the change to affected employees before the start of the 2026 plan year.
Implementing these updates early will help ensure a smooth transition and avoid operational or compliance issues once the new rules take effect.