IRS Finalizes Catch-Up Contribution Regulations

401(k) plans may allow employees aged 50 or older to make elective deferrals over the annual limit; these deferrals are known as “catch-up” contributions.

The SECURE 2.0 Act of 2022 added a new requirement that higher-paid participants (i.e., participants who earned at least $145,000 of FICA wages in the prior year (as indexed)) must make catch-up contributions (including any super catch-up contributions for participants aged 60–63) on a Roth basis. Roth contributions are included in a participant’s gross income in the year of deferral; however, distributions, including any earnings, are generally tax-free if certain requirements are met. Congress implemented this new Roth catch-up mandate to raise tax revenue to pay for other SECURE 2.0 provisions.

Issuance of Final Regulations Requires Immediate Action

After much anticipation, on September 16, 2025, the IRS issued final regulations addressing the mandatory Roth catch-up contribution requirements. The final regulations confirm that a plan is not permitted to require that all participants’ catch-up contributions be Roth contributions. This means that those participants who earned less than $145,000 (as indexed) in FICA wages in the prior year will still be permitted to choose whether their catch-up contributions are made as pre-tax or Roth. While the final regulations clarified several open issues, administrative challenges remain for employers and payroll providers.

• Most notably, the regulations did not extend the effective date, and employers must implement mandatory Roth catch-up contributions, effective January 1, 2026. (Special rules apply for non-calendar year plans or collectively bargained plans.)
• However, employers have a good-faith compliance transition period through December 31, 2026; the final regulations become effective January 1, 2027.

Key Takeaways for Plan Fiduciaries

In light of this looming deadline, employers must work quickly with their recordkeepers and payroll providers to ensure good-faith compliance by January 1, 2026. To move forward, we suggest addressing the following questions:

• Determination of FICA Wages. How will the payroll system calculate the FICA wage threshold of $145,000 (as indexed) for purposes of identifying employees subject to the new Roth catch-up mandate? While this may seem simple in the abstract, questions often arise about whether and how payroll systems will aggregate an employee’s wages from all or some combination of controlled group entities, or whether the payroll system will only capture the employee’s wages from his or her participating employer. This issue can be particularly challenging when employees transfer between entities within the controlled group. In addition, employers have questioned how the $145,000 limit is determined where certain compensation is exempt or not commonly subject to FICA.
• Catch-Up Contribution Structure. Does the 401(k) plan provide for a “spillover” catch-up election (i.e., does the plan apply one deferral election to eligible compensation up to the combined annual-plus-catch-up-deferral-limit ($23,500 + $7,500 = $31,000 in 2025)? Or does the plan require participants to make a separate catch-up election? If a separate election is required, do catch-up contributions run concurrently with regular pre-tax and Roth deferrals? Each design is permissible but raises different coordination issues.
• Roth Catch-Up Elections. Will the employer (1) implement a deemed Roth catch-up election, or (2) cancel existing elections and require that participants subject to the Roth catch-up mandate make a new Roth catch-up contribution election? Implementation of a deemed Roth catch-up election requires giving participants an effective opportunity to make a different election and monitoring when such deemed election ceases to apply. On the flip side, if participants’ existing catch-up elections are cancelled, they could be upset if they miss out on their full savings opportunity. The method chosen for implementing Roth catch-up elections will also affect the available correction methods if errors occur.
• Controlled Group Coordination. Does the employer maintain any other 401(k) plans within the controlled group? Is any plan a dual-qualified Puerto Rico plan? If so, coordination may be needed for purposes of administering the Roth catch-up mandate. In addition, if any plans within the controlled group provide for super catch-up contributions, then all plans within the controlled group must also provide for super catch-up contributions (known as the “universal availability” requirement).

As we approach year-end, employers also must begin thinking about:

• Participant Communications. Communications will be needed to educate employees regarding the new Roth catch-up mandate. We recommend that participant communications be carefully drafted and reviewed to ensure employees understand their catch-up options. Further, as noted above, use of the deemed Roth catch-up election is contingent upon employees receiving reasonable notice and having an effective opportunity to make a different election.
• Plan Amendments. The 401(k) plan documents will need to be amended to reflect plan operations and certain requirements set forth in the final regulations. Amendments are generally required by December 31, 2026, but it may be advisable to record the design decisions as they are made.

Please contact a member of the Winston & Strawn Employee Benefits & Executive Compensation Practice or your Winston relationship attorney for further information.