Secure 2.0 Roth Catch-Up Contributions

FAQs

1.   When do catch-up contributions for Highly Paid Individuals (HPI’s) have to be made as Roth?

Any catch-up contribution made on or after January 1, 2026 must be made as a Roth contribution by an HPI.

 

2.    Who is considered an HPI?

A plan participant is subject to the new Roth catch-up contribution requirement if they meet both of the following criteria:

  1. Age 50 or older by the end of the calendar
  2. Had FICA wages (reported in Box 3 of the W-2) that were more than $150,000 (subject to cost-of-living adjustments) in the previous calendar year from the same employer sponsoring the retirement plan.

Participants who meet these criteria must make catch-up contributions on a Roth (after- tax) basis starting in 2026, unless the plan does not allow Roth contributions—in which case, catch-up contributions cannot be made.

 

3.   What if an individual does not receive a W-2?

Partners and sole proprietors receive self-employment income, which is not subject to FICA taxes. As a result, they will not be classified as HPI earners under the SECURE 2.0 Roth catch-up provision. These individuals are not subject to the new Roth catch-up requirements.

 

4.   What if our plan does not offer Roth contributions?

Catch-up contributions will be disallowed for affected participants unless the plan is amended to include a qualified Roth contribution feature. Participants earning $150,000 or less in FICA wages can still make pre-tax catch-up contributions, even if the plan doesn’t offer Roth.

 

5.   What if my plan has self-directed brokerage accounts?

If your plan uses self-directed brokerage accounts for some or all the plan participants, we recommend opening a separate brokerage account specifically for participants who are now required to make Roth catch-up contributions under SECURE 2.0. This greatly simplifies the trust accounting process and reduces cost.

 

6.   Will Roth catch-up contributions for HPI’s result in added year end data for testing purposes?

Yes, to ensure your retirement plan is still in compliance with the new SECURE 2.0 regulations, we will need Box 3 FICA wages for all employees. This information is necessary to determine the HPI’s who are required to make catch-up contributions as Roth 401(k) contributions.

A new column will be added to the annual employee census data template included in your 2025 year-end data collection process enabling you to provide FICA wage information to Nova.  With this information, Nova can identify the participants who will be required to make Roth catch-up contributions to your retirement plan during 2026.

 

7.   Can we amend our plan to designate all catch-up contributions as Roth contributions?

Unfortunately, no. While making all catch-up contributions Roth would simplify the administration of the new Roth catch-up mandate, the IRS has stated that in doing so would be a reduction of a benefit right or feature of the plan.

 

8.   What if catch-up contributions for an HPI are contributed as pre-tax?

There are two methods to correct this.

  1. W-2 Correction: If a participant’s catch-up contributions were incorrectly treated as pre-tax instead of Roth, the W-2 correction method is considered the easiest and most desirable correction alternative—but it comes with limitations.
  • The plan transfers the affected elective deferrals (adjusted for gains or losses) from the participant’s pre-tax account to their Roth
  • The employer then corrects the participant’s W-2 Form, reporting the contribution as an after-tax Roth contribution instead of a pre-tax

Important Limitation:

  • This method can only be used if the W-2 Form has not yet been filed for the year in question, meaning this is likely only a viable option for non-calendar plan years.
  • For calendar-year plans, this often means the correction must be identified and completed before January 31st of the following year—making timely detection and action

Due to this tight timeline, the W-2 correction method may not be available in most cases, especially if Roth violations are discovered after W-2s have already been issued.

  1. In-Plan Roth Rollover: In most cases, the in-plan Roth rollover method will be the primary correction approach used when catch-up contributions are mistakenly treated as pre-tax instead of Roth.
  • The plan transfers the incorrectly allocated deferrals (adjusted for gains or losses) from the participant’s pre-tax account to their designated Roth contribution account.
  • The transferred amount is reported on Form 1099-R as includible in the participant’s income for the year of the transfer.
  • This correction is treated similarly to an in-plan Roth conversion.

For this correction method to be applied the plan document must allow for in-plan Roth rollovers.

 

9.   Will Nova assist us with identifying HPI’s?

Yes, with the addition of the FICA wages included with the year-end data collection a report with a listing of HPI’s will be included in your annual compliance package. This report will be in addition to the Highly Compensated Employee (HCE) report.

  • HCE’s are defined as an employee who makes over $160,000 (subject to cost-of- living adjustments) in 2025 and/or is a 5% or more owner.
  • HPI’s are identified as an employee who makes over $150,000 in Box 3 on the W-2 (subject to cost of living adjustments).

As a result, an HPI would not be considered an HCE if they were not a 5% or more owner or makes over $160,000 in 2025 and an HCE would not be an HPI if they did not make more than $150,000 in 2025 but were considered an HCE due to ownership.

 

10.   Can we still recategorize elective deferrals as Catch-Up?

Certain 401(k) Plans are able to pass ADP testing (or mitigate the failure) by recharacterizing elective deferrals as catch-up contributions for certain HCEs that did not use the catch up. This method is still available for ADP testing. However note, that since most HCEs are likely also HPIs, the recharacterization will be required to be done as a Roth, and must follow the Roth rollover rules as described above. Note the timing is paramount, because recharacterizations that are done this way more than 2 ½ months after the end of the plan year will be subject to an excise tax of 10% of the amount recharacterized.

 

11.   Do Government and Collectively Bargained Plans have different effective dates?

The effective date for collectively bargained plans is the later of the date outlined for all plans, or the first taxable year beginning after the collective bargaining agreement in effect on 12/31/25 terminates (without extensions).

The effective date for governmental plans will be the later of the date outlined for all plans, or the first taxable year after the close of the first legislative session that begins after 12/31/25.

In both cases, it is likely that the same effective dates will be applied to collectively bargained and governmental plans.