ARTICLE | February 12, 2026

A Pivotal Shift in Retirement Savings

The impact extends well beyond tax treatment. Payroll systems, plan design, compliance processes, and employee communication strategies will all need to adapt. This article breaks down what the new rules require, who they apply to, and the practical steps organizations should be taking now to prepare for the shift ahead.

Background: Understanding Catch-Up Contributions

What Are Catch-Up Contributions? 

Definition: Additional retirement plan contributions allowed for workers age 50 and older. 

Catch-Up Contributions have been available for nearly 25 years to help near-retirees boost savings. The contribution’s traditional structure outlines participants havin the ability to choose pre-tax or Roth treatment. The 2025 limits are set at  $7,500 standard catch-up for most plans.

Once employers determine which plans and employees are subject to the mandatory Roth catch-up rules, the next consideration is how contribution limits and tax treatment change as employees approach retirement age

SECURE 2.0 introduced an enhanced catch-up contribution for employees ages 60 through 63, often referred to as the “super catch-up.” For 2025 and 2026, eligible participants may contribute up to $11,250, which is 150 percent of the standard catch-up amount, if the plan permits it. This provision reflects the reality that many employees are in their strongest earning and saving years just before retirement. For employers, it also means payroll and plan systems must be able to apply higher limits based on age, in addition to standard catch-up rules.

At the same time, the tax treatment of catch-up contributions is changing. In the past, participants could generally choose between pre-tax and Roth catch-up contributions based on their personal tax strategy. Pre-tax contributions lowered taxable income today but were taxed in retirement, while Roth contributions were made after tax and could be withdrawn tax-free later. Beginning in 2026, that choice is no longer available for certain higher-income employees. When the mandatory Roth rules apply, both standard and enhanced catch-up contributions must be made as Roth contributions, shifting the tax benefit from today to retirement and increasing the importance of clear employer communication

The New Rule: Mandatory Roth Catch-Up Contributions

What “FICA Wages” Means 

Box 3 on Form W-2 (Social Security wages) 

May differ from Box 1 taxable wages. This box includes Salary, wages, bonuses, most compensation
Pre-tax 401(k) contributions still count as FICA wages and Fica wages are not prorated for partial-year employees.

Understanding Scope: Not Every Plan or Employee Is Impacted

One of the most common misconceptions about the 2026 retirement plan changes is that they apply universally. In reality, the mandatory Roth catch-up rule is highly targeted, but employers must understand its scope to administer it correctly.

Only 401(k), 403(b), and governmental 457(b) plans are subject to the requirement. Other commonly used retirement arrangements—including SIMPLE IRAs, SIMPLE 401(k)s, SEP-IRAs, and individual IRAs—are not affected. Even within covered plans, certain 403(b) and 457(b) catch-up provisions receive special treatment, reinforcing the importance of plan-specific review.

On the employee side, eligibility hinges on prior-year W-2 wages from the same employer, not total household income or ownership status. This distinction creates several important exemptions. Self-employed individuals and partners compensated through K-1s are excluded, as are new employees in their first year of employment, since there are no prior-year wages to test. Employees whose compensation falls below the wage threshold may continue to make traditional pre-tax catch-up contributions, regardless of age.

For employers, this means the challenge is not volume but precision. The rule affects a relatively small group of employees, but it requires accurate wage tracking, coordinated payroll systems, and clear communication to avoid compliance errors and employee confusion.

Which Plans Are Affected

• Covered plans: 401(k), 403(b), governmental 457(b)
• Not affected: SIMPLE IRAs, SIMPLE 401(k)s, traditional/Roth IRAs, SEP-IRAs
• Special provisions for certain 403(b) and 457(b) catch-up types

Important Exemptions

• Self-employed individuals not subject to rule
• Partners receiving K-1 income (not W-2 wages)
• New employees in first year: No prior-year wages to test
• Employees below wage threshold regardless of age

Effective Dates and Transition Period

Looking Ahead: What Comes After 2026

Operational Impact on Employers 

New Administrative Responsibilities 

The mandatory Roth provision introduces a new layer of responsibility for employers, shifting retirement contributions from an employee-elected decision to an employer-enforced requirement. Plan sponsors must now identify affected employees based on prior-year wages, ensure payroll systems properly classify contributions as Roth, and coordinate data across recordkeepers, payroll providers, and internal HR systems. This is not a one-time determination. Eligibility will need to be monitored on an ongoing basis as employee compensation fluctuates year over year. For many organizations, the challenge will not be understanding the rule itself, but building the operational discipline required to administer it accurately and consistently at scale.

Payroll System Requirements

1. Must track and test against FICA wage threshold 
2. Automatically designate catch-up contributions as Roth for eligible employees 
3. Handle both standard and super catch-up limits by age 
4. Implement age-based and wage-based logic simultaneously 
5. Generate accurate tax reporting

Plan Document and Design Considerations 

The mandatory Roth requirement also forces a closer examination of plan design and governing documents. Plans that do not currently offer a Roth feature will need to be amended or risk eliminating catch-up contributions entirely for higher-earning employees. While amendment deadlines generally extend to December 31, 2026, waiting until the last moment compresses decision-making around optional features such as a deemed Roth election, which would automatically classify certain contributions unless employees affirmatively change them. Plan sponsors must also ensure participants have a meaningful opportunity to adjust their elections, particularly in light of universal availability requirements and wage aggregation rules that apply when multiple employers are involved. These considerations elevate plan design from a technical exercise to a strategic governance decision with lasting employee impact.

Vendor Coordination Challenges

Vendor coordination will be one of the most persistent challenges in implementing the mandatory Roth catch-up rules. Payroll providers, recordkeepers, TPAs, and legal counsel each play a critical role, yet they operate on different timelines and respond to different incentives. In practice, misalignment among these parties is the most common source of errors, particularly when changes are introduced late or without coordinated testing. Early engagement across all vendors, paired with deliberate testing well ahead of go-live, is essential. Equally important is the development of clear, documented processes and procedures to ensure accountability and consistency as responsibilities move across systems and organizations.

Tax Reporting and Form W-2 Changes 

How Roth Catch-Ups Appear on Form W-2 

• Box 1 wages: Not reduced by Roth catch-up contributions 
• Box 12: Roth contributions reported with specific codes (AA/BB) 
• Result: Higher reported taxable wages than previous years 
• No change to actual tax liability—timing of benefit shifts

Impact on Employee Tax Returns 

Employer Reporting Obligations 

Employer reporting obligations will take on heightened importance under the mandatory Roth framework. Accurate payroll coding is essential, as errors can trigger the need for corrected W-2s, creating administrative burden and eroding employee confidence. In certain correction scenarios, Form 1099-R reporting may also come into play, adding another layer of complexity and scrutiny. These requirements reinforce the need for close coordination between payroll and benefits teams, ensuring that contribution treatment, reporting, and corrections are aligned from the outset rather than addressed after issues surface.

What Employers Should Do Now: Action Plan

Employee Communications Strategy

An effective employee communications strategy will be critical to how this change is ultimately received. Messaging should be targeted to the affected population and personalized where possible, with a clear explanation that the shift to mandatory Roth treatment is driven by federal law, not employer discretion. Tax implications need to be explained in plain terms, supported by practical examples that help employees understand what will and will not change. Providing accessible resources such as FAQs, modeling tools, and access to advisors can reduce confusion and anxiety, particularly among executives and other key employees who are most likely to be impacted. Just as important is setting clear expectations for how the change will appear on W-2s issued in January 2027, so there are no surprises after the fact.

Common Questions and Misconceptions

Conclusion: Preparation Is Everything

Key Takeaways 

The mandatory Roth catch-up requirement arriving in 2026 is both real and imminent, with meaningful consequences for employers and employees alike. It introduces operational complexity for plan sponsors while directly affecting the tax outcomes of higher-earning participants. Successful implementation will require tight coordination across payroll, recordkeeping, legal, and advisory stakeholders, with little margin for error. When mistakes occur, they are not abstract. They are visible, personal, and costly to the employees affected. Ultimately, early preparation is the defining factor that separates a controlled, orderly rollout from a reactive and disruptive compliance crisis.

The Bottom Line for Employers 

The bottom line for employers is clear. This is not a problem to be addressed at the time of implementation, but a early planning priority that demands attention well in advance. The compliance obligation rests squarely with the employer, regardless of how many vendors are involved in administration. At the same time, the quality of employee communication will largely determine how this change is experienced across the workforce. For organizations that approach it thoughtfully, the mandatory Roth requirement also presents an opportunity to demonstrate benefits leadership, operational competence, and a disciplined commitment to doing complex things well.

Final Thought 

The mandatory Roth catch-up rule represents more than a technical change—it’s a fundamental shift in how retirement savings and tax policy interact for high-earning, near-retirement workers. Employers who approach 2026 with clarity, preparation, and proactive communication will turn a compliance challenge into an opportunity to strengthen their benefits program and employee trust. 

Additional Resources and Next Steps 
IRS final regulations (September 15, 2025) 
IRS Notice 2023-62 (transition relief) 
SECURE 2.0 Act full text and summaries 
Consult qualified retirement plan advisors 
Contact Larson Gross for personalized guidance