Roth catch-up contributions are in effect: Here are plan sponsors' next steps

As of January 1, 2026, the Roth catch-up requirement for retirement plans is officially in place. Employees aged 50 and older who earned more than $150,000 in the prior year must now make their catch-up contributions as Roth contributions.

For plan sponsors, this marks a shift from preparation to execution. The question is no longer how to get ready — it's whether the plan is operating as intended.

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Start with operations

Because payroll determines how contributions are coded and reported, it remains the foundation of compliance. Now is a good time to revisit how the $150,000 wage threshold is identified each year and confirm that payroll systems are handling the transition properly once a participant with greater than $150,000 in prior year W-2 pay reaches the 402(g) deferral limit ($24,500 for 2026).

For impacted employees, catch-up contributions should automatically be treated as Roth. Pre-tax deferrals should stop at the correct threshold. And deemed Roth catch-up contributions should be tracked clearly and reported accurately.

Even though the IRS has allowed a good-faith compliance standard during this transition period, oversight still matters. Validating processes now can help avoid correction work later. If Roth provisions were recently added to your plan, confirm that plan documents, payroll coding and recordkeeping systems are aligned with how contributions are actually being administered.

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Address the participant experience

This change may be most noticeable to higher earners and employees nearing retirement. Catch-up contributions no longer reduce current taxable income, which can impact take-home pay in a way participants may not have anticipated.

Clear communication can prevent confusion. Sponsors should explain who is affected, how the income threshold works, and what the change means for both current taxes and long-term retirement planning.

While the loss of an immediate tax deduction may draw attention, it is important to provide context. Roth contributions grow tax-free, and qualified withdrawals in retirement are tax-free. For employees who expect to be in a similar or higher tax bracket later, that tradeoff may support greater flexibility. Positioning the change within a broader discussion of tax diversification can help participants view it as part of a long-term strategy rather than simply a reduction in current tax savings.

Don't overlook the enhanced catch-up limit

At the same time, 2026 introduces an expanded savings opportunity for employees ages 60 to 63. This group can contribute an additional $3,250 beyond the standard $8,000 catch-up, for a total of $11,250 in extra contributions.

For participants who exceed the income threshold, those dollars must also be Roth. Even so, the higher limit offers meaningful savings potential during the final working years. Making sure eligible employees are aware of this enhanced provision can help them take full advantage of the opportunity.

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Moving forward

With the rule now in effect, ongoing monitoring becomes the priority. Periodically reviewing payroll coordination, contribution classifications and participant communications will help ensure the plan continues to operate smoothly.

Although the Roth catch-up change is primarily administrative, its impact reaches both plan operations and participant perception. Thoughtful oversight — combined with clear, balanced education — can help plan sponsors manage both effectively.