In 2025, the IRS has brought forth regulations that fully explain significant portions of the SECURE 2.0 Act pertaining to catch-up contributions to employer-sponsored retirement plans. The changes specifically focus on older high-income workers aged 50 and older who make catch-up contributions, and will make some of those contributions Roth contributions (after tax). The new regulations explore increases in catch-up limits to employees aged 60 up until 63, and to newly-created SIMPLE plans.
The final regulations build on previously released proposed regulations but identify many more details as a win-win for the employer and the participant simultaneously. The effective date is generally expected to be January 1, 2027, and certainly, it is important for plan administrators, employers, and employees saving for their retirement. Learn more
Background on Catch-Up Contributions and Roth Accounts
Employees 50 and older can enhance their retirement savings using catch-up contributions that exceed amounts allowed as regular contribution limits. In the past, catch-up contributions have been made using a pre-tax income or Roth contributions methodology. The SECURE 2.0 Act provides greater clarity to the rules for the taxable employee. In instances where an employee exceeds the level of either compensation thresholds outlined in SECURE 2.0, the catch-up contribution is made as Roth contributions governed by SECURE 2.0.
Roth contributions are classified as post-tax dollars, allowing for future distributions that are not taxed. Pre-tax contributions are made with pre-tax dollars and are taxed when distributed. The catch-up contribution requirement of the SECURE 2.0 Act will encourage some employees to tax diversify their retirement contributions; however, it will be important at the plan level to maintain administrative clarity with compliance and participant communication.
Overview of Final Regulations Issued in 2025
The final regulations released clarify multiple aspects, including:
- Definition of higher-income participants subject to the Roth catch-up rule by allowing aggregation of wages from separate employers under common law arrangements
- Correction mechanisms if a plan inadvertently failed to comply with Roth catch-up requirements
- Implementation of deemed Roth elections, where a participant is treated as if they elected Roth for catch-up contributions under certain circumstances
- Specific provisions for plans covering participants in Puerto Rico
- Adjustments to catch-up contribution limits for participants aged 60-63 and new SIMPLE plan participants
These rules aim to create consistency, ease administration, and protect participant rights while enforcing the Roth designation rule for higher earners.
Key Changes from Proposed to Final Regulations
The final regulations address critical feedback received on the proposed rules, including:
Aggregation of Wages Across Employers:
Employers with common law employment relationships can now aggregate wages of participants to properly determine Roth catch-up applicability, solving confusion when employees work multiple jobs.
Correction of Failures:
More flexible approaches to correcting failure to designate catch-up contributions correctly, with guidance that helps plans avoid penalties if discovered early and properly fixed.
Deemed Roth Election Implementation:
New provisions permit plans to treat certain contributions as Roth automatically without participant elections under specified conditions, simplifying administration.
Puerto Rico Plans:
Additional clarification and rules apply to plans maintained for participants in Puerto Rico, considering the unique tax and regulatory differences there.
These changes, in totality, aid in making the retirement plan administration more feasible and clear.
When Do These Regulations Take Effect?
For the most part, the regulations, being final, take effect only for contributions made in taxable years beginning on or after December 31, 2026. Plans may, though, have implemented the Roth catch-up rule earlier if the interpretation of the regulations to be effective sooner was reasonably done so in good faith. Certain governmental plans and plans established under a collective bargaining agreement may, in any event, have a later effective date.
This later effective date gives employers time to amend plan documents, provide notice to participants, and make payroll and recordkeeping adjustments to comply with the new regulations.
Who Will be Impacted by the New Roth Catch-Up Regulations?
Below are the categories that can be impacted by the New Roth Catch-Up Regulations:
Higher-income Participants
Employees who earn more than the earnings limit set by the Social Security Administration's wage base in the previous calendar year must comply with the Roth catch-up contribution requirement. In 2024, the earnings limit was approximately $160,200, but the limit varies each year.
Age Categories
Participants who are at least 50 years of age may make catch-up contributions; however, participants who are projected to be ages 60-63 have increased catch-up contribution limits as established under the SECURE 2.0 Act.
Employers
If your organization is sponsoring a retirement plan that is governed by the ERISA or the IRS, you will need to comply with the SECURE 2.0 Act through plan amendments and administrative processes, possibly involving record keepers and payroll vendors as well.
Higher Limits for Catch-Up Contributions for Persons Aged 60 to 63 and SIMPLE Plan Participants
It was further noted under the SECURE 2.0 Act that for certain employees aged 60 to 63, the limits for catch-up contributions were raised to permit these employees to put away more for retirement as they are getting closer to the potential "theoretical" retirement date.
Secondly, under the Act, there were new SIMPLE plan catch-up provisions incorporated to also increase limits for aggressive retirement savings options for small employers and their employees.
Final regulations were published and detail how these new limits will work, and require that these limits appropriately fit with Roth catch-up requirements.
Implications for Retirement Plan Administrators
Let us now understand these implications clearly:
Plan Amendments and Documentation
Plan sponsors must review and amend plan documents by December 31, 2026, to incorporate Roth catch-up rules and increased limits where applicable.
Payroll and Recordkeeping Updates
Systems need to track wages and payroll aggregated across common law employers, designate catch-up contributions as Roth when required, and generate accurate participant statements reflecting these changes.
Participant Notification
Clear communication with plan participants regarding any changes to their contributions, taxes, and retirement savings options is essential for compliance and participant satisfaction.
Correction Procedures
Administrators must be prepared to detect and correct plan failures related to Roth catch-up designation promptly under IRS guidance in the final regulations.
Benefits and Challenges of the New Roth Catch-Up Rules
Below are some of the challenges and benefits of the New Roth Catch-Up rules:
Benefits
- Encourages tax diversification and long-term tax planning
- Higher earners accumulate more tax-free retirement income
- Increased catch-up limits promote better savings in peak earning years
Challenges
- Complexity for multi-employer common law workers in wage tracking
- Administrative burden of tracking and correctly designating contributions
- Need for strong participant education to avoid confusion and errors
Best Practices for Employers and Participants
Here are some of the best practices employers and participants can follow:
Employers
- Update plan documents early and consult with legal and tax advisors
- Train payroll and HR teams on new wage aggregation and contribution rules
- Utilize technology solutions to automate tracking and designation
- Deliver timely participant education about Roth catch-up contributions
Participants
- Identify wage threshold and catch-up windows for retirement contributions maximization.
- Tax planning for Roth versus pre-tax contribution strategies to maximize savings.
- An hour or two with a good financial advisor will keep the retirement plan on track with changes and opportunities.
Frame SECURE 2.0 Act changes as part of the larger movement toward after-tax savings, addressing:
- Better tax flexibility.
- Better sustainability for retirement assets.
- Less risk to the government's revenue over the long run.
Highlights of SECURE 2.0 Act:
- Roth catch-up contributions.
- Automatic enrollment into retirement plans.
- Emergency savings provisions.
- Lifetime income disclosures.
If anything, these changes represent more direction in building adaptive, meaningful retirement benefits that answer the financial concerns of an aging population.
Helpful Links
- How Professional Bookkeeping Helps You Stay IRS Audit-Ready
- IRS Cracks Down on Tax Scams Linked to Social Media: Penalties Soar
- IRS 2025 - New Rules for Multimillionaires’ Tax Audits
The Treasury and IRS finalization of the new regulations about Roth catch-up contributions can be significant for retirement plan participants and plan sponsors. The regulations require certain higher-income earners to make catch-up contributions on a Roth basis and allow higher catch-up contribution limits for older retirement plan participants, promoting tax diversification and growth of savings over the long term.
There are administrative hurdles for plan administrators to implement the provisions by the effective date in 2027. However, the correction procedures and ensuing regulations from the Treasury and IRS are flexible and provide ample direction for plan administrators to meet compliance.
Contact The Fino Partners today to stay updated on the recent IRS changes and news.
