SECURE 2.0 Requires Roth-only Catch-up Only for High-Income Individuals

Updated August 27, 2023

NOTE: In Notice 2023-62, published on Aug 25, 2023, the IRS delayed the effective date of this requirement to 2026.

SECURE 2.0 introduced two significant changes to employee catch-up contributions: one requires catch-ups made by high-earning individuals to be Roth (after-tax), and the other increases catch-up amounts for individuals aged 60-63.


Retirement plans that permit employees to save (defer) a portion of their current earnings for retirement, such as a 401(k) plan or a 403(b) plan, often include a feature allowing employees aged 50 or older to contribute an additional amount, called a catch-up contribution. The annual amount, $7,500 in 20231, is in addition to the maximum deferral limit set for the tax year, $22,500 in 2023. Before SECURE 2.0, if a plan allowed, catch-up amounts could be made with pre-tax dollars, Roth (after-tax dollars), or both.

Starting January 1, 20242

All catch-up contributions must be made on a Roth basis, after-tax. However, employees with wages of $145,000 or lower (adjusted for inflation) in the preceding calendar year may contribute their catch-up contributions on a pre-tax basis if they so choose. Effectively, the new rule eliminates a pre-tax catch-up contribution opportunity for high-income employees with compensation above the threshold amount (i.e., those the employer paid $145,000 or more in calendar 2023; indexed annually for inflation). The administrative transition period announced by the IRS in Notice 2023-62 extended the deadline for implementation of the new catch-up rule to 2026.

Since this is a mandatory provision, employers will need to take a few proactive steps before January 1, 2026:

  1. Review plan document:
    • Ask: Does the plan allow catch-up contributions today? If so, does it also allow Roth contributions?
    • If catch-ups are not permitted, then no further action is required.
    • If catch-ups are permitted, and Roth contributions are allowed, then no further action is required.
    • If catch-ups are permitted and Roth contributions are not allowed, an employer must either amend the plan to allow Roth contributions or amend the plan to remove catch-ups. These changes would apply to all participants (not just the high-income employees).  A plan amendment is likely needed before January 1, 2026.
  2. Coordinate with payroll and plan’s investment platform providers:
    • Employers must also confirm with their payroll departments and/or software/outsourced payroll providers that their systems are timely updated to reflect the new rules effective on January 1, 2026.
    • Additionally, updated employee deferral elections will need to be transmitted to payroll for timely implementation.
    • Finally, it will be essential to confirm with the plan’s investment platform provider that their systems are also properly set up to track the catch-up deferrals and Roth amounts. Coordination between payroll providers and investment platforms is now more important than ever; it is unlikely that investment platforms alone can adequately monitor the compensation threshold.
  3. Identify impacted employees and communicate the rule change:
    • Employers will need to identify catch-up eligible employees with compensation exceeding the $145,000 threshold amount and inform them about the change in catch-up rules.

NOTE: Initially there was uncertainty around the compensation definition for purposes of this new $145,000 limit. SECURE 2.0 defines it as amounts subject to Social Security and Medicare taxes used for payroll withholding, aka FICA wages. Individuals with self-employment earnings, such as sole proprietors and partners, do not have FICA wages. In Notice 2023-62, IRS announced its intent to issue guidance confirming  that high earning individuals without FICA wages (like sole proprietors and partners) will generally remain eligible for pre-tax catch-up contributions.

  • Deferral
  • election forms will need to be updated to include an explanation of the new rule.
  • Companies with employees whose compensation fluctuates significantly with commissions or bonuses must be vigilant to ensure their employees receive timely and accurate information to make their deferral decisions. Salary deferral elections may no longer be as simple as set-it-and-forget it.
  • Plans that rely on recharacterization of deferrals as catch-up to satisfy annual 401(k) nondiscrimination testing may wonder how this will impact their Highly Compensated Employees.  For instance, when a Highly Compensated Employee chooses to make salary deferral contributions only on a pre-tax basis, can a portion of the pre-tax deferral be recharacterized as a Roth catch-up to fix the otherwise failing compliance test and avoid refunds?  IRS guidance is needed to clarify this issue.

Let Pinnacle Plan Design Help

Consultants at Pinnacle Plan Design are actively monitoring new guidance concerning SECURE 2.0. This represents our understanding of the laws at this time.  Additional guidance will provide additional clarity.  If you have any questions about the rules changing catch-up contributions in your retirement plan, don’t hesitate to contact us at (520) 618-1305.

  1. Click here to view current contribution limits ↩︎
  2. SECURE 2.0 made the new provision effective for taxable years beginning in 2024; January 1, 2024 for most individuals. The IRS adminstrative relief pushed this deadline by two years, to 2026 ↩︎
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