IRS Issues Mandatory Roth Catch-Up Regulations

January 15, 2025

By Ian Berger, JD — IRA Analyst, Ed Slott and Company

One of the more controversial rules in the 2022 SECURE 2.0 Act is the requirement that plan catch-up contributions by certain highly-paid employees be made on a Roth basis. Last Friday, (January 10, 2025) the IRS issued proposed regulations on the new rule.

Congress intended for the Roth catch-up mandate to be effective on January 1, 2024. However, in response to a flood of complaints, the IRS in Notice 2023-62 delayed the effective date until January 1, 2026. The delay means that until next year, plans can continue to accept pre-tax catch-up contributions from all employees (including high-paid).

The proposed regulations are not technically effective until after the IRS issues final regulations. But plans are allowed to follow them in the interim. Since the regulations are mostly taxpayer-friendly, most plans will want to do that.

The regulations confirm several unanswered questions about the new mandatory Roth catch-up contribution, most of which were originally addressed in Notice 2023-62:

• The Roth mandate applies to 401(k), 403(b) and governmental 457(b) plans – but not to SIMPLE IRA plans.

• The requirement only applies to employees with “wages” from the employer in the preceding year that exceeds a dollar threshold. The IRS confirmed that “wages” means wages subject to FICA; that is, amounts reported on Box 3 (not Box 1) of W-2. The dollar threshold would have been $145,000 in 2023 wages for 2024 and would have remained $145,000 in 2024 wages for 2025. But it will go up in future years based on inflation. The threshold on 2025 wages for determining required Roth catch-up contributions for 2026 (when the rule becomes effective) will not be available until the end of this year.

• Self-employed individuals have self-employment income, not wages. If a self-employed person’s income exceeds the dollar limit in the prior year, is she required to make catch-ups on a Roth basis? The IRS says no. Only high-paid workers with actual “wages” are subject to the Roth rule.

• The look-back wage rule means that new employees — no matter how well paid — will get a free pass in their first year of employment (because they have no wages the previous year from the new company). And, because the IRS says the dollar threshold

• is not pro-rated for the first year of employment, some highly-paid employees also will not be affected in their second year of employment.

• One important issue the IRS punted on in 2023 was addressed in the new regulations: What if a plan doesn’t already offer Roth contributions (since they are optional)? The IRS says it will not force an employer to put in a Roth option. But if a plan does not have a Roth option, pre-tax catch-ups could only be made available to lower-paid employees (i.e., those who would not have been subject to the mandatory Roth rule). Higher-paid employees could not make any catch-ups – pre-tax or Roth. Of course, most employers would be uncomfortable with this arrangement because it would alienate its highest-earning employees. So, the practical impact is that plans without a Roth contribution option will likely have to introduce one for 2026.

This is the only mandatory Roth rule in SECURE 2.0. Many affected employees may be better off making catch-up contributions on a Roth basis anyhow, but starting next year they will have no choice.

Reprinted from The Slott Report (irahelp.com) with permission. © 2025 Ed Slott and Company, LLC. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

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