By Bill Barks
Director, Retirement Plan Services
Email Bill
To all clients sponsoring a 401(k) Plan:
We want to make you aware of an important update related to the Mandatory Roth Catch-Up requirement that becomes effective January 1, 2026.
As background, this provision was originally scheduled to take effect in 2024 but was delayed under IRS Notice 2023-62. The rule requires certain employees to have their catch-up contributions treated as Roth, meaning after tax, if their W-2 Box 3 FICA wages exceed a specific threshold in the prior year.
Initially, the IRS set this compensation limit at $145,000. Until recently, there was no indication that this number would change. However, the newly released 2026 IRS cost-of-living adjustments included an important update:
The compensation threshold for 2025 has increased to $150,000. This means that any participant with more than $150,000 in FICA wages in 2025 must make their 2026 catch-up contributions as Roth.
Please also note:
- Your plan document must allow for Roth contributions. If it does not, catch-up contributions will not be permitted in your plan.
- Most plans already include this feature, but if you are unsure, we encourage you to contact us, and we will verify it for you. If Sponsel is your plan administrator, your plan document allows for Roth contributions.
- You can review the complete list of 2026 IRS Limits here.
If you have questions about how this change may impact your plan or you would like to review the plan administration services we provide, please call us at (317) 608-6699. Our team is here to help.