SECURE 2.0: What Plan Sponsors Need to Know Before 2026 

The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act brought a long list of changes for retirement plans, and one of the most impactful changes is right around the corner. Starting in 2026, participants will be required to make certain catch-up contributions on an after-tax Roth basis. 

That may sound like a small detail, but it has real implications with regard to how plans are designed, how payroll systems operate, and how employees think about saving for retirement. For employers, this is both a compliance issue and a chance to re-check whether their plan is set up to make things easier for participants—or more challenging. 

What’s Changing with Catch-Up Contributions 

Bigger Catch-Up Limits 

Beginning in 2025, participants ages 60 through 63 will be able to put more money into their retirement—up to the greater of $10,000 or 50 percent above the normal catch-up limit. These amounts will adjust for inflation in later years. 

Mandatory Roth Catch-Up 

The bigger shift comes in 2026. If an employee earned more than $145,000 in wages from the plan sponsor in the prior year (a threshold that will rise with inflation), they can no longer make catch-up contributions on a pre-tax basis; the catch-up contributions must be on a Roth basis. 

How Plans Handle Catch-Up Contributions Today 

There are two main ways plans account for catch-up contributions: 

• Spillover method: Once someone hits the annual deferral limit, their extra contributions automatically flow into the catch-up bucket. This method usually works smoothly with SECURE 2.0 Act requirements. 

• Flagged method: Employees make a separate election for catch-up contributions. This method is more complicated and may cause compliance headaches with the new rules. 

Payroll and Administration Will Carry the Load 

The rule is clear: Roth catch-up contributions must show up as wages on a participant’s W-2. That means that payroll, not the recordkeeper, is responsible for getting the contributions right. Plan sponsors should start lining up conversations with payroll providers now to figure out: 

• How they will flag employees who cross the $145,000 threshold each year. 

• How they will switch deferrals from pre-tax to Roth once employees hit the limit. 

• How to prevent errors that would require messy year-end corrections. 

Exceptions to Note 

• Plans without a Roth feature: Sponsors don’t have to add a Roth feature to their plans; however, they will need to restrict catch-up contributions for impacted employees. 

• 403(b) and 457(b) plans: These plans have their own catch-up rules that will overlap with the Roth requirement. 

• Governmental and collectively bargained plans: These plans have deferred implementation dates. 

• Puerto Rico and dual-qualified plans: These plans are treated differently, often defaulting to after-tax contributions in place of Roth. 

Steps to Take Over the Next Year 

Here are several proactive steps plan sponsors can take in 2025 to ensure they are well prepared for the regulatory and operational changes coming in 2026: 

1. Review their plan design and method for tracking catch-up contributions. 

2. Confirm that their payroll will be ready to handle the Roth requirement. 

3. Build a participant communication strategy so employees aren’t caught off guard. 

4. Think through the implications of non-discrimination testing, especially for highly compensated employees. 

5. Consult their third-party administrator or recordkeeper to confirm whether any changes were implemented through negative election that may have impacted their plans’ operations. 

How Participants Will Experience This Change 

Employees may not notice right away, but for high earners, this is a big shift. Someone who has always contributed their catch-up contributions on a pre-tax basis will suddenly see those dollars go in on a Roth basis. Without clear communication, that could cause confusion or frustration. 

On the other hand, this creates an opportunity to educate participants on the benefits of Roth savings—tax-free growth, more flexibility in retirement, and a way to diversify tax treatment down the road. And for higher earners who are above the income limits for contributing to a Rother IRA, this change effectively gives them a way to build Roth savings through their workforce plan. 

Items You May Have Missed 

• Auto Enroll: Retirement plans established on or after December 29, 2022, must automatically enroll employees at a minimum of 3 percent of the employee’s pay, with annual increases of 1 percent per year up to at least 10 percent, but not to exceed 15 percent. Implementing auto enrollment at 10 percent from the outset can simplify administration by eliminating the need to track annual increases.  

• Long-Term Part-Time Employees: Starting in 2025, plan sponsors must allow long-term part-time employees (i.e., those working more than 500 hours in 2 consecutive years) to make elective deferrals. This expands eligibility compared to the original SECURE Act, which required 3 years of service. Employers are not required to offer matching contributions. 

Wrapping Up 

The Roth catch-up requirement under the SECURE 2.0 Act doesn’t kick in until 2026, but sponsors shouldn’t wait until the last minute to get ready. The right time to start planning is now, while you still have time to adjust your plan’s design, work with payroll, and prepare employees for what’s ahead. 

If you’d like to talk through how these rules will affect your organization, Sikich’s employee benefit plan team is ready to help.  

To learn more about how these changes may impact your plan, join our upcoming webinar on November 6 to hear insights from our experts. Register Here 

About Our Authors 

Marie S. Marks, CFP®, is a senior retirement plan specialist with over 35 years of experience serving clients with their cash balance plans, defined benefit plans and defined contribution plans including 401(k), 401(a), 457 and 403(b). Marie specializes in assisting clients in all industries with corporate retirement plans and business consultations. She establishes and oversees retirement plans, provides benchmarking and RFP services and offers documented due diligence processes for retirement planning.

Karen S. Sanchez, CPA, QPA, oversees Sikich’s employee benefits services team. She leads a group of professionals that provide services in the areas of: employee benefit plan audits, third-party administration services for retirement plans, welfare plan Form 5500 preparation, payroll tax compliance issues, and Affordable Care Act reporting.