Who Does the Mandatory Roth Catch-Up Rule Apply To?
Two conditions must both be met:
- The employee is age 50 or older by December 31, 2026
- The employee's W-2 wages from the plan-sponsoring employer exceeded $150,000 in 2025 (the prior calendar year; $145,000 is the statutory amount, indexed upward for inflation)
An employee who earned $148,000 in 2025 is below the threshold and may still make pre-tax catch-up contributions in 2026 even if their current salary is higher. The test uses prior-year wages only.
Who is exempt: Self-employed individuals with solo 401(k) plans have no W-2, so the rule does not apply to them. Employees below the threshold are also unaffected.
How Much Can Be Contributed in 2026?
For employees age 50-59 or 64 and older, the standard catch-up is $8,000, making the total $32,500.
When the mandatory Roth rule applies, the entire catch-up amount goes to the Roth side. You cannot split it: for example, $4,000 Roth and $4,000 pre-tax.
Pre-Tax vs. Roth: What Changes Financially
Pre-tax contributions reduce your W-2 income in the current year. Roth contributions do not. For a high earner in the 32% bracket making an $8,000 standard catch-up:
- Pre-tax: $2,560 in immediate tax savings this year
- Roth (required): No immediate savings, but qualified withdrawals in retirement are fully tax-free
The forced Roth treatment is a net cost for employees who expect lower income in retirement and a net benefit for those who expect equal or higher income in retirement. Either way, it is not optional.
What Employers Must Do
Employers have until December 31, 2026 to amend plan documents. The IRS issued final regulations in September 2025 providing a good-faith compliance window. Key requirements:
- The plan must offer a Roth 401(k) elective deferral feature. If no Roth option currently exists, the employer must add one. Until then, affected employees cannot make any catch-up contributions.
- Payroll systems must identify affected employees based on prior-year W-2 wages from that specific employer.
- The plan document amendment deadline is December 31, 2026 per IRS Notice 2024-2.
Plans that fail to comply after the good-faith period risk disqualification, which would cause all contributions to lose their tax-favored status.
Common Questions
Does this affect IRAs or solo 401(k) plans? No. The rule applies only to employer-sponsored 401(k) plans and similar plans (403(b), SIMPLE IRA, and governmental 457(b) plans follow parallel rules). IRA catch-up contributions are separate and not affected.
What if wages come from multiple employers? The $150,000 wage test is applied per employer. If an employee holds two jobs with two different 401(k) plans, each plan looks only at wages paid by that sponsoring employer.
Can I still contribute normally outside the catch-up? Yes. The mandatory Roth rule only governs the catch-up portion. The base elective deferral of $24,500 remains your choice: pre-tax or Roth.
Questions about whether the mandatory Roth rule affects your compensation strategy or retirement plan contributions? Contact TS CPA for a personalized review.