The Treasury Department and IRS published final regulations (TD 10033) implementing changes made by the SECURE 2.0 Act of 2022 (SECURE 2.0 Act) to catch-up contributions to retirement plans.

Background

The final regulations address three sections of the SECURE 2.0 Act.

Section 603 requires catch-up contributions for participants earning over $145,000 in FICA wages in the preceding year to be designated as after-tax Roth contributions (Roth catch-up contributions). The $145,000 threshold is subject to annual inflation adjustments.

Section 109 increases the catch-up contribution limits for plan participants aged 60 through 63. The increased limit is 150% of the normal catch-up limit.

Section 117 applies only to SIMPLE plans. It automatically increases the catch-up contribution limits for employers with up to 25 employees and allows employers with more than 25 employees that make additional contributions to elect the higher contribution limits. The increased limit is 110% of the normal limit.

Roth catch-up contributions

IRC Section 414(v) allows catch-up contributions for individuals aged 50 or older (for a complete list of 2025 limits, see Tax Alert 2024-2075). Although not required to allow catch-up contributions, retirement plans that do so must, under IRC Section 414(v)(4). make catch-up contributions available to all eligible participants, a rule known as the "universal availability" requirement (not to be confused with the universal availability requirement under IRC Section 403(b)(12) for salary reduction contributions).

Section 603 of the SECURE 2.0 Act added IRC Section 414(v)(7) to require catch-up contributions made by participants in IRC Section 401(k), 403(b) and 457(b) plans who earn FICA wages over $145,000 in the preceding year to be designated as Roth catch-up contributions. This statutory amendment was supposed to be effective in 2024.

Responding to stakeholder concerns about the administrability of the 2024 effective date, the IRS gave plans, via Notice 2023-62, a two-year administrative transition period (2024 and 2025) to implement the Roth catch-up contribution requirement. The effect of this transition relief was to delay the statutory effective date from 2024 to 2026.

Proposed regulations (REG-101268-24) on the new requirements were issued in January 2025. The final regulations adopted the proposed regulations with some changes in response to comments.

Most importantly, the final regulations retain the 2026 effective date for the statutory amendment, even though the regulations themselves generally do not apply until 2027. For 2026, a reasonable, good-faith interpretation of the statutory text is required. Stated differently, the more nuanced interpretations of the statute reflected in the final regulations are not mandatory until 2027; unlike 2024 and 2025, however, taxpayers cannot simply ignore the Roth catch-up requirement in 2026.

Under the final regulations, if an employer's plan does not allow Roth contributions, employees subject to the Roth catch-up requirement cannot make catch-up contributions under IRC Section 414(v). The plan, however, will not be considered out of compliance with the IRC Section 414(v)(4) universal availability requirement solely because it does not allow catch-up contributions for those employees. Conversely, a plan cannot require all catch-up contributions to be Roth catch-up contributions regardless of the employee's prior-year FICA wages.

Under the final regulations, the $145,000 threshold (as adjusted for inflation) applies to Social Security wages (reported in box 3 on Form W-2). In some cases, the employer sponsoring the retirement plan is the employee's common law employer and that is the only entity paying and reporting the wages to which the $145,000 threshold (as adjusted for inflation) applies. In other cases, however, wages from different employers may be aggregated. The final regulations include guidance where (1) the employer uses a common paymaster in accordance with IRC Section 3121(s), (2) the employer is a member of a controlled group of employers that are treated as a single employer, (3) a predecessor and successor employer exist as the result of an asset purchase, and (4) the employer is a disregarded entity.

A contribution that must be treated as a Roth catch-up contribution but was mistakenly treated as a pre-tax contribution can be corrected in two ways (in addition to the normal methods for correction):

• If the Form W-2 has not yet been filed or furnished, the catch-up contribution (adjusted for allocable gains or losses) can be transferred into the participant's Roth account and the contribution (not adjusted for allocable gains or losses) reported as a Roth contribution on the Form W-2.
• Whether or not the Form W-2 has been filed or furnished, the contribution can be corrected by in-plan Roth rollover, resulting in Form 1099-R reporting of the amount transferred (adjusted for allocable gains or losses).

These correction methods are only available, however, if certain conditions are met. For example, practices and procedures must be in place that are designed to comply with the rules at the time an elective deferral is made.

Corrections are not required if the elective deferral that was required to be a designated Roth contribution is $250 or less, or is attributable to an amended Form W-2. The final regulations give several examples.

Higher limits for participants aged 60 through 63 and for SIMPLE plans

Beginning in 2024, Section 117 of the SECURE 2.0 Act made several changes to the contribution limits for SIMPLE plans. Among other changes, it increased the catch-up contribution limit to 110% of the normal limit. This higher limit applies automatically for employers with up to 25 employees. Employers with more than 25 employees can elect to have the higher contribution limits apply, but only if they make additional matching or nonelective contributions to the plan.

Beginning in 2025, Section 109 of the SECURE 2.0 Act amended IRC Section 414(v)(2) to increase the limit on catch-up contributions to 150% of the otherwise applicable limit for eligible participants aged 60 through 63. These higher limits are not just for SIMPLE plans — they apply to IRC Section 401(k), 403(b) and 457(b) plans as well.

The final regulations address the interaction between these provisions, which overlap beginning in 2025. The regulations clarify that only one of these provisions can apply to a participant at a time, even though both provisions can apply simultaneously to different participants in a single plan. Thus, participants aged 60 through 63 who are eligible for the extra 50% are not eligible for the extra 10%. Rather, the extra 10% is available only to participants who are not eligible for the extra 50% (for example, because they are aged 50 through 59).

Implications

Beginning in 2026, there is likely to be even more interplay between payroll and benefits than historically required for retirement plans. Retirement plan administrators will need prior-year payroll information to determine whether the $145,000 threshold (as adjusted for inflation) was exceeded to determine whether the mandatory Roth catch-up rules apply, and payroll professionals may be called upon to change the reporting of plan contributions from pre-tax contributions to Roth contributions on Forms W-2. Employers will need to work with their plan administrators and payroll service providers to determine how payroll tax system configurations will be modified to facilitate correct federal income tax withholding and Form W-2 reporting.