Impacted Employers: Employers offering 401(k) or a similar workplace retirement plan.
Effective Date: The final regulations confirm that these rules will generally go into effect in 2026.
Summary: The Internal Revenue Service (IRS) recently issued final regulations that provide guidance for retirement plan catch-up contributions reflecting statutory changes under several provisions of the SECURE 2.0 Act of 2022 (“SECURE 2.0” or “Act”).
What you need to know
- Catch-up contributions to certain retirement plans for High Wage Earners (HWE) are required to be made as Roth (post-tax) contributions.
- A HWE is an employee whose wages from the employer sponsoring the plan during the preceding calendar year exceeded $150,000 (indexed annually). The wage threshold is based on Social Security (FICA) wages paid to the individual by the employer sponsoring the plan.
- Catch up contributions to 401(k), Simple 401(K), 403(b) or 457 Retirement Plans are subject to Roth post-tax treatment, except for eligible participants whose prior year wages from the employer sponsoring the plan do not exceed $150,000.
- To support this requirement, the RUN Powered by ADP® (RUN) payroll platform will look back at previous year's wages to determine if an employee is a HWE. HWE information is available on the Employee Summary Report and Retirement Report, available under the Reports tab in RUN.
- If an employee is flagged as a HWE, RUN will automatically block pre-tax catch-up contributions beginning with payrolls with a check date on or after 1/1/26.
- If RUN does not have a record of your company's prior year payroll data, you will need to manually indicate whether an employee is a HWE when setting up the retirement deduction on the employee’s profile.
What you need to do
- Work with your retirement plan custodian and legal counsel to review how the final regulation applies to your plan.
- Prepare and adopt necessary plan amendments by the December 31, 2026 SECURE 2.0 amendment deadline.
- Plan sponsors that currently offer catch-up contributions but do not offer Roth contributions must add a Roth contribution feature to enable HWEs to make catch-up contributions.
- Confirm whether your HWEs would like to contribute to a Roth catch-up plan. Set up the applicable Roth Catch-Up deduction in RUN, and ensure that the deduction is added for each employee who will be contributing to the plan. Type "How do I set up a payroll deduction?" into the search bar in RUN for assistance completing this task.
For additional information, visit the ADP SPARK Blog.
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