On September 15, 2025, the IRS unveiled final regulations requiring retirement plan sponsors to designate age 50 catch-up contributions as Roth contributions for participants with annual FICA wages greater than $145,000 (as adjusted for inflation) in the prior year. Retirement plans must implement this requirement by January 1, 2026. The final regulations generally become effective on January 1, 2027.
Here are some highlights of the regulations:
- Lookback for Roth Catch-up Wage Threshold
- Whether a catch-up eligible participant is subject to the Roth designation requirement is based on the participant's wages (Social Security wages reported in Box 3 of Form W-2) for the calendar year preceding the calendar year in question.
- Optional Aggregation of Wages for Roth Catch-up Wage Threshold Determination
- Generally, the participant's wages for the Roth catch-up wage threshold determination are those paid by the participant's common law employer.
- However, the final regulations have optional rules for aggregation of employers using a common paymaster and for a controlled group whereby the paymaster or the controlled group is treated as a single employer and all wages paid are aggregated.
- Automatic Roth Designation for Catch-up Eligible Participants Earning Over $145,000 (as Adjusted for Inflation)
- The final regulations generally permit a plan to provide that a participant who is subject to the Roth catch-up requirement is deemed to have irrevocably designated any catch-up contributions as designated Roth contributions, provided the participant has an effective opportunity to make a new election that is different from the deemed election, and the deemed Roth contribution election ceases if the participant ceases to be subject to the Roth designation requirement.
- Regulations Do Not Require Roth Contributions but Incentivize Them
- While the regulations do not require a plan to allow Roth contributions, participants with wages over the $145,000 threshold will not be permitted to make catch-up contributions if Roth contributions are not offered by the plan.
- Roth Catch-up Contribution Correction Methods
- The regulations provide two methods for correcting Roth catch-up contribution designation errors:
- W-2 Correction Method. Under this method, the plan may correct a participant's pre-tax catch-up contribution that was required to be a designated Roth contribution by transferring the elective deferral (adjusted for allocable gain or loss) from the participant's pre-tax account to the participant's designated Roth account and reporting the contribution (not adjusted for allocable gain or loss) as a designated Roth contribution on the participant's Form W-2 for the year of the deferral (that is, reporting the contribution as if it had been correctly made as a designated Roth contribution).This method is available only before a participant's original Form W-2 for the year is filed with the IRS or furnished to the participant.
- In-Plan Rollover Correction Method. Under this method, the plan may correct a participant's pre-tax catch-up contribution that was required to be a designated Roth contribution through an in-plan Roth rollover in accordance with Section 402A(c)(4)(E) of the Code. The plan would directly roll over the elective deferral (adjusted for allocable gain or loss) from the participant's pre-tax account to the participant's designated Roth account and report the amount of the in-plan Roth rollover on Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) for the year of rollover.
- The regulations provide two methods for correcting Roth catch-up contribution designation errors:
Please contact any member of Venable's Employee Benefits and Executive Compensation Practice Group with questions about the final regulations.