IRS Final SECURE 2.0 Rules: Roth Catch-Ups for High Earners Take Effect in 2026

IRS Final SECURE 2.0 Rules: Roth Catch-Ups for High Earners Take Effect in 2026

The Internal Revenue Service (IRS) has released final regulations to implement the “Rothification” requirements of the SECURE 2.0 Act of 2022, which will primarily affect employers providing workplace retirement plans like 401(k)s. Starting in 2026, these regulations will require catch-up contributions made by high wage earners to be treated as post-tax Roth contributions.

The SECURE 2.0 Act specifies that employees aged 50 and older can make catch-up contributions beyond the standard annual limit—in 2025, this limit is set at $23,500, with an additional catch-up option of $7,500. However, for employees classified as high wage earners, defined as those earning more than $145,000 in the preceding year, their catch-up contributions will now be treated as Roth contributions, thus affecting their taxation.

An essential aspect of these final regulations is that employers can aggregate wages from related employers to assess whether the high wage earner threshold is met. Moreover, if employers utilize concurrent elections for contributions, catch-up contributions could automatically be designated as Roth, even if the total contributions do not exceed the annual limit.

The regulations further clarify that retirement plans are not compelled to offer enhanced “super” catch-up contributions for those aged 60 to 63 unless they choose to offer them to all eligible participants. Additionally, for SIMPLE IRA plans, contribution limits will increase, providing enhanced options for older workers.

Notably, the IRS regulations also address unique circumstances for Puerto Rico retirement plans, allowing them to comply with SECURE 2.0 provisions without being in conflict with local tax codes regarding Roth contributions.

Final regulations specify that not all catch-up contributions can be designated as Roth; non-high wage earners must still have access to pre-tax catch-up contributions. Plans that do not offer Roth contributions will exclude high wage earners from making catch-up contributions altogether.

As the effective date approaches, employers and plan sponsors are encouraged to prepare for these regulatory changes by consulting legal counsel and adapting their retirement plan components accordingly. This proactive approach will ensure compliance and facilitate a smoother transition to the updated regulations set to come into effect in 2026.

In this evolving landscape, it is crucial to stay informed and engaged with these significant legislative changes that aim to enhance retirement savings through more flexible options for participants.

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