Overview: The SECURE 2.0 Act mandates that certain catch-up contributions to 401(k) plans be treated as Roth contributions. Participants who are 50 years or older can make additional contributions beyond the standard limits, known as "catch-up" contributions. With the introduction of IRC § 414(v)(7), some participants are now required to make these as Roth contributions.
Roth Contributions Defined: Unlike pre-tax contributions, Roth contributions are included in gross income for the year they are made. However, qualified distributions from a Roth account, including earnings, are typically tax-exempt.
Key Aspects of the Roth Catch-Up Requirement:
- Eligible Participants: Participants must have Roth treatment for catch-up contributions if their wages from the plan-sponsoring employer exceeded $145,000 in the previous calendar year (adjusted for inflation annually). For instance, those making catch-up contributions in 2026 will require Roth treatment if their 2025 wages were over $150,000.
- Options for Other Participants: Plans allowing mandatory Roth catch-up contributions must also allow other eligible participants to choose Roth treatment for their catch-up contributions. Those below the income threshold can opt for Roth designation for their contributions.
- Plans Lacking Roth Options: For plans without a Roth feature, the catch-up contribution limit for individuals requiring Roth treatment is effectively zero, as they cannot make such contributions. Plan sponsors may want to consider adding a Roth option to accommodate these participants.
This requirement was set to begin in 2024, but the IRS extended the compliance deadline, making it applicable to tax years starting after December 31, 2025