*Originally published on: 5/27/2026
Overview of SECURE 2.0 Roth Catch-Up Requirement
SECURE 2.0 introduced a new requirement for higher-compensated employees to make catch-up contributions on a Roth basis beginning on January 1, 2026. Employees are considered higher-compensated if their W-2 FICA wages exceeded $150,000 in the previous year. This threshold is indexed for inflation.
By now, many 401(k) plans have likely undergone the necessary administrative changes to manage this new requirement. These changes may have involved adding a Roth provision and updating payroll procedures to monitor higher-compensated employees’ contributions to ensure the new requirement is met. Despite best efforts, plan sponsors may still encounter errors where a higher-compensated employee’s catch-up is withheld from their pay as traditional 401(k) rather than Roth 401(k). Fortunately, the IRS has provided options for plan sponsors to correct these errors and keep their plans compliant.
Identifying and Correcting Errors
Errors may be discovered in several ways: an attentive employee might notice the issue, a recordkeeper or TPA could find it while investing payroll contributions, or it might surface during an annual plan audit. Regardless of how it’s identified, the error is an operational failure that must be corrected to maintain plan qualification. The method of correction depends on when the error is discovered and when it is addressed.
- Correction through payroll for errors discovered before W-2 issuance: If the error is found before the employee’s W-2 is issued, the improperly withheld traditional 401(k) contribution, with earnings or losses, can be transferred to the employee’s Roth 401(k) account. Then, when the employee’s W-2 is issued, it will be reported as if the employee made a Roth contribution. Coordination between the plan sponsor’s payroll and plan administration is crucial for this correction.
- In-Plan Roth Rollover: If the error is discovered after the W-2 is issued, it can be fixed with an in-plan Roth rollover. This moves the incorrectly withheld catch-up from the employee’s traditional 401(k) money source to the Roth source within the plan’s recordkeeping system. A Form 1099-R will be issued for the rollover amount, thereby correcting the tax treatment of the contribution. Typically, the plan’s recordkeeper or TPA will manage this.
- Distribution of Excess 401(k): Some plans may not offer a Roth provision. To comply with the new requirement, these plans will prohibit higher-compensated employees from making catch-up contributions. Therefore, ongoing monitoring is necessary to ensure these employees do not exceed contribution limits with catch-up contributions. If a higher-compensated employee makes a catch-up contribution in a plan that does not permit Roth contributions, the catch-up contribution is considered an excess contribution and must be removed from the plan. Neither payroll correction nor in-plan Roth rollovers can resolve the excess contribution. Instead, the excess must be distributed.
Timely Correction and Next Steps
This new catch-up requirement and the nuances of the correction can be overwhelming. If an error occurs, it’s important to begin the correction process right away. Early detection provides more correction options and may be better for employees from a tax perspective.
Applicability to Other Plans
While this article discusses 401(k) contributions, 403(b), and governmental 457(b) plans that offer catch-up contributions are also subject to the “catch-up as Roth” requirement and these correction options are available to both plan types.
Questions and Assistance
If you have questions about the Roth catch-up requirements or any other retirement plan questions, contact the Conrad Siegel team!