Catchup as Roth is here!

The final regulations issued on September 16, 2025 provide guidance regarding Catchup contributions that must be made on a Roth after-tax basis. These regulations are effective January 1, 2027, but as of January 1, 2026 you must make a good faith effort to comply with these final rules. Here is what to expect:

Anyone who earned FICA wages (Box 3 of Form W-2) of $150,000 or more in the prior calendar year is considered a Highly Paid Individual (HPI) for the current calendar year. Please note the $150,000 is a retroactive change by the IRS from $145,000 as previously announced. Also HPI is different from a Highly Compensated Employee (HCE). You will need to review your year-to-date compensation when preparing the census data for your plan and determine who those people will be. If these employees are already making their contributions on a Roth basis, you have nothing more to do. Those contributing on a pre-tax basis will need to be monitored to ensure once they hit the maximum deferral contribution any future contributions are withheld on a Roth basis.

It is the Plan Sponsor’s responsibility to ensure that money is correctly deducted from pay and deposited to the Recordkeeper. As Plan Sponsor, you can set an administrative procedure that says once a participant reaches the annual deferral limit any additional contributions are automatically deemed as “Roth”. You should work with your payroll vendor to ensure they are set up to handle this, then let those affected individuals know that is the process. This is our recommendation as long as your service providers can accommodate this procedure. We will be providing a sample notice in the near future that you can use.

If your plan assets are held in brokerage accounts, you may need to open a Roth account to accurately deposit and account for these Catchup contributions. Please contact your financial representative and your consultant if this is the case.

If this administrative procedure does not work, you will need to notify those HPI’s that they will need to personally elect to change their contributions to Roth once they reach the limit. The participant can do this at the beginning of the year by changing their deferral election form to indicate they want to defer $24,500 (in dollars) as pre-tax and anything above that as Roth. Or they can wait until they hit the limit and change their election to Roth at that time. If your recordkeeper doesn’t accept forms and only allows electronic or online changes, the HPI will need to determine the best way to change the deferral election. You or whomever handles your payroll will need to monitor this and let each person know prior to hitting the limit to ensure elections are in place to accommodate the Roth contribution.

We realize mistakes could occur in the first year regarding this new regulation and the IRS has acknowledged some acceptable correction methods, but avoiding the error before it happens is much preferred for all involved. However, in order to take advantage of these correction methods you must have a procedure in place. Along with the sample notice we will also send you sample procedures that you can put in place to satisfy this requirement.

Preparing for a successful testing season

Be it calendar or fiscal, as the year end approaches for your plan there are some strategies you can incorporate to prepare for a successful and less stressful testing season. Most important is to start early. Review the items you have previously had to submit to us as TPA or to your auditor such as Census data, Annual questionnaire, ownership & family members, Fiduciary bond insurance information, payroll reports, financial reports, contribution deposits, etc. Gather any paperwork and electronic documentation you can and make a “file” whether it involves paper or electronic files and save it in one place.

Check the accounts at your financial institution where payroll and contributions are distributed from to ensure proper accounting. Your internal reporting should all reconcile back to the bank accounts.

As your TPA, the most common issues we discover are census data errors. Your payroll report should list ALL employees who received wages and should be listed on the census. The most important part of year end information is the census that contains the correct definition of compensation and contributions. If you have any questions, please contact your Consultant.

Contributions on the census should reconcile to the year-to-date payroll, Box 12 of the W2 and the recordkeeper reporting. Here is a sample reconciliation you can use to make sure these amounts match:

You should use this sample for each contribution source (pretax deferral, Roth, match, safe harbor) to ensure accuracy on the census reporting.

REMEMBER, getting your information in early is the key to having testing done on time!

Annual Retirement Plan Limits for 2026

Below is a summary of the Internal Revenue Service issued pension plan limitations for the 2026 tax year (as compared to 2025). This is for informational purposes and may be used for year-end planning of your retirement plan contributions.

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