Secure 2.0 IRS Proposed Regulations on Catch-Up Contributions: What Plan Administrators Need to Know

The IRS has issued proposed regulations under the SECURE 2.0 Act that, if finalized, would significantly impact how catch-up contributions are handled for higher-income employees. While these changes are not yet final, they could require plan administrators to update plan documents, payroll systems, and participant communications before the effective date of January 1, 2026.

This article explores the key provisions of the proposed regulations and important administrative considerations for plan sponsors. Staying informed and preparing early will help ensure a smooth transition—should the proposed regulations pass.

Q1: What is the main change proposed for catch-up contributions?

The IRS has proposed that, effective January 1, 2026, catch-up contributions for higher-income employees (those earning over $145,000 in the prior year) must be made as Roth contributions. This applies to 401(k), 403(b), and governmental 457(b) plans.

Q2: Who is affected by this change?

This change affects participants who:

• Are age 50 or older, and
• Earned more than $145,000 in the prior year (indexed for inflation), and
• Wish to make catch-up contributions

Q3: What happens if a plan doesn’t offer Roth contributions?

If a plan doesn’t offer Roth contributions, it will not be able to accept catch-up contributions from higher-income employees starting in 2026. Plans may need to add a Roth option to continue allowing catch-up contributions for these employees.

Q4: How is the $145,000 threshold determined?

The $145,000 threshold is based on the participant’s prior-year compensation from the employer sponsoring the plan. In future years, this amount will be indexed for inflation.

Q5: What are the compliance requirements for plan administrators?

Plan administrators will need to:

• Identify participants eligible for catch-up contributions
• Determine which participants exceed the $145,000 threshold
• Ensure catch-up contributions for higher-income employees are made as Roth contributions
• Update plan documents, processes, and communications

Q6: What is the timeline for implementing these changes?

The proposed effective date is January 1, 2026. However, plan administrators should start preparing well in advance to ensure compliance and smooth implementation.

Q7: How should plan administrators communicate these changes to participants?

Plan administrators should:

• Develop clear communication materials explaining the changes
• Provide guidance on how the new rules affect different income groups
• Offer education on the differences between pre-tax and Roth contributions
• Update enrollment materials and plan summaries

Q8: What are the potential challenges in implementing these changes?

Challenges may include:

• Updating payroll and recordkeeping systems
• Ensuring accurate tracking of participant income
• Modifying plan documents and administrative procedures
• Educating participants about the impact on their retirement savings

Q9: Are these regulations final?

No, these are proposed regulations. The IRS is seeking comments from the public, and final rules may differ. Plan administrators should stay informed about any updates or changes to the proposed regulations.

Staying ahead of these changes is critical. Review plan documents, engage with payroll providers, and consult legal or benefits professionals to ensure your plan remains compliant. Acting early can minimize disruptions and support participants in making informed retirement decisions.