2026 is the year Section 603 actually takes effect
The SECURE 2.0 Act of 2022 (enacted as part of the Consolidated Appropriations Act, 2023) included Section 603, which mandates that catch-up contributions for high-earners be Roth. The original effective date was January 1, 2024. The IRS released Notice 2023-62 in August 2023 providing a two-year administrative transition period, deferring the effective date to plan years beginning after December 31, 2025. For calendar-year plans, that is 2026.
The transition period was necessary because the rule as written had implementation problems: not all 401(k) plans offered Roth at all, payroll systems had to identify high-earners by prior-year FICA wages from the same employer (a non-trivial data problem when payroll systems do not naturally store the prior year), and IRA-based plans were unclear in scope. The two-year delay let recordkeepers, payroll vendors, and plan sponsors prepare.
For 2026, Section 603 applies. A participant whose 2025 FICA wages from the same employer exceeded $145,000 (indexed thereafter) cannot elect a pre-tax catch-up contribution in 2026; the catch-up must be Roth. If the plan does not offer Roth, then high-earners cannot make catch-up contributions at all — a significant consequence that pushed many plans to add a Roth feature during the transition window.
The 2026 contribution limits in context
| Limit | 2025 | 2026 | Note |
|---|---|---|---|
| 401(k) elective deferral (under 50) | $23,500 | $24,500 | IRC §402(g) limit |
| Catch-up (age 50-59 and 64+) | $7,500 | $8,000 | Standard catch-up |
| Super catch-up (age 60-63) | $11,250 | ~$11,750 | SECURE 2.0 §109, indexed |
| Total 401(k) limit (50-59, 64+) | $31,000 | $32,500 | Deferral + catch-up |
| Total 401(k) limit (60-63) | $34,750 | ~$36,250 | Deferral + super catch-up |
| 415(c) annual additions limit | $70,000 | ~$73,000 | Deferral + employer + after-tax |
| HCE compensation threshold | $160,000 | ~$165,000 | For nondiscrimination testing |
| Section 603 wage threshold | $145,000 (statutory) | ~$150,000 (indexed) | Prior-year FICA wages from same employer |
Specific 2026 figures are based on IRS announcements available at time of publication; the catch-up indexing is applied per IRC §415(d) cost-of-living adjustments. The Section 603 wage threshold is statutorily $145,000 with indexing; the IRS announces the indexed amount each year.
Who is a "high earner" for Section 603 purposes
The test (per IRC §414(v)(7)(A) as amended by SECURE 2.0 §603):
- The participant's FICA wages (Box 3 + Box 7 of W-2) from the same employer for the prior calendar year exceeded $145,000 (indexed).
Several elements deserve unpacking:
- FICA wages, not Box 1. The threshold uses Box 3 (Social Security wages) and Box 7 (Social Security tips). This is a deliberate choice because Box 3 captures retirement plan deferrals and is more comparable across employers. A high-deferring participant may have low Box 1 but Box 3 above the threshold.
- Same employer. A new hire's prior-year wages from a former employer do not count. A participant who changed employers mid-2025 will have lower 2025 wages from the new employer in 2025, even if total income was high.
- Self-employed exception. Self-employed individuals (sole proprietors, partners) do not have FICA wages from the plan-sponsoring entity. IRS guidance (proposed regulations 2024) clarified that self-employed contributors are not subject to the Roth catch-up mandate because they have no FICA wages from the entity.
- Initial year hires. A participant in their first year of employment with the sponsor has no prior-year FICA wages from the same employer and is therefore not subject to the mandatory Roth catch-up in that first year.
Plan sponsor obligations for 2026
- Plan amendment. The plan document must permit Roth catch-up contributions. Most major recordkeepers offered model amendments during 2024-2025. The amendment deadline under SECURE 2.0 is generally December 31, 2026 (extended for some plan types), but the operational change must be in place January 1, 2026 for calendar-year plans.
- High-earner identification. Payroll must flag participants whose 2025 FICA wages from the employer exceeded the indexed threshold. This requires pulling 2025 W-2 Box 3 + Box 7 totals at year-end 2025 / early 2026.
- Election re-collection. High-earners who previously elected pre-tax catch-up must be informed that 2026 catch-ups are Roth-only. Participant communication should include the tax difference (Roth basis vs pre-tax deduction) and that the election can still be made.
- Payroll deferral coding. Pre-tax 401(k) contributions are coded as 401(k) on W-2 Box 12 with code D. Roth 401(k) contributions are code AA. Catch-up Roth amounts above the regular Roth deferral get the same AA code on the W-2 but require system rules that distinguish base deferral from catch-up.
- Failed elections. If a high-earner mistakenly elects pre-tax catch-up and payroll processes it as pre-tax, the IRS proposed regulation framework treats the contribution as a "deemed Roth" or requires correction under EPCRS. The Notice 2023-62 transition relief framework provides ordering for corrections.
Payroll system changes required
| System component | Pre-2026 behavior | 2026 behavior |
|---|---|---|
| Catch-up election form | Single field: pre-tax or Roth | For high-earners, only Roth is accepted |
| Deferral cap logic | Stop at $23,500 + $7,500 catch-up | Same caps, plus tax type per high-earner status |
| W-2 Box 12 coding | D = pre-tax, AA = Roth | Same codes, but more participants in AA |
| FICA wage carryforward | Optional | Required for 12 months at minimum |
| Plan eligibility data feed | Demographic + deferral elections | Add prior-year FICA wage flag |
| EPCRS correction support | Standard 415 / 402(g) corrections | Plus 603-related correction codes |
Major payroll vendors (ADP, Paychex, Gusto, Workday, Rippling) released 2026 updates during 2025 to support these changes. Smaller payroll providers and bespoke in-house systems may have gaps; HR should confirm system readiness before January 2026 payroll runs.
Section 601 SEP and SIMPLE IRA Roth
SECURE 2.0 Section 601 was a separate change: SEP IRAs and SIMPLE IRAs may now permit Roth contributions. This is optional for the employer (SEP) or for the SIMPLE plan, and it took effect for tax years beginning after December 31, 2022. By 2026, the IRA custodians (Fidelity, Schwab, Vanguard, etc.) have built support for Roth SEP and Roth SIMPLE accounts.
The Roth SEP / Roth SIMPLE expansion has these characteristics:
- Employer SEP contribution to Roth SEP IRA: Employer contribution amount is reported on the participant's W-2 as wages (Box 1, 3, 5) and as a Roth IRA contribution. The participant pays income tax on the contribution but the SEP IRA grows tax-free.
- SIMPLE IRA Roth deferrals: Employee deferrals can be Roth, mirroring 401(k) Roth deferral mechanics.
- Limit interaction: The Roth SEP/SIMPLE limits do not stack with the Roth IRA limits — they are within the SEP/SIMPLE annual limits ($23,000 SIMPLE elective in 2025, $69,000 SEP/SAR-SEP in 2025).
Section 603 Roth catch-up mandate does NOT apply to SEP or SIMPLE IRAs. The high-earner Roth requirement is specific to 401(k), 403(b), and governmental 457(b) plans.
Section 109: ages 60-63 super catch-up
SECURE 2.0 Section 109 added an enhanced catch-up for participants who attain age 60, 61, 62, or 63 during the calendar year. The super catch-up amount equals the greater of:
- $10,000 (indexed for inflation), or
- 150% of the regular age-50+ catch-up amount in effect for the year
For 2025, the regular catch-up was $7,500 and 150% × $7,500 = $11,250 — so the super catch-up was $11,250. For 2026, the regular catch-up is $8,000 and 150% × $8,000 = $12,000, but the IRS-announced super catch-up applies the higher of $10,000 indexed and 150% of catch-up; the indexed $10,000 base may exceed $12,000 by 2026 depending on IRS calculation.
Important rules:
- Available only at ages 60, 61, 62, or 63. At age 64+, the super catch-up reverts to the regular catch-up amount.
- Subject to Section 603 mandatory Roth treatment for high-earners (the super catch-up is a catch-up contribution, so the same Roth-mandate rule applies).
- Plan must permit super catch-up — most plans do, but the plan document must reflect it.
Two illustrative 2026 examples
Example 1 — High-earner age 55, calendar-year plan, 2026:
2025 FICA wages from employer: $190,000 (above the $145,000 indexed threshold). Plan permits Roth deferrals and Roth catch-up. Participant elects $24,500 pre-tax base deferral plus $8,000 catch-up. Outcome: Pre-tax base $24,500 ✓, but catch-up $8,000 must be Roth. Payroll processes $24,500 as code D (pre-tax), $8,000 as code AA (Roth). Total deferral: $32,500. Tax effect: pre-tax base reduces 2026 Box 1 wages by $24,500; Roth catch-up does not reduce Box 1.
Example 2 — Age 62 super catch-up, not high-earner, 2026:
2025 FICA wages from employer: $120,000 (below threshold). Age 62. Plan permits super catch-up. Participant elects maximum: $24,500 base + $11,750 super catch-up = $36,250 total. Section 603 does NOT apply (not high-earner). Participant may choose pre-tax or Roth for both base and super catch-up. Tax effect: if all pre-tax, 2026 Box 1 wages reduced by $36,250 plus FICA on full deferral amount.
Common implementation pitfalls
- Not adding Roth to the plan in time. If the plan does not permit Roth deferrals at all, high-earners cannot make any catch-up contribution in 2026. Some plan sponsors realized this only late in 2025 and had to scramble to add Roth.
- Using Box 1 instead of Box 3. Section 603 uses FICA wages (Box 3 + Box 7), not Box 1. A participant with high deferrals may have low Box 1 but Box 3 above threshold.
- Treating new hires incorrectly. A participant in their first year of employment with the sponsor has zero prior-year FICA wages from the sponsor. They are NOT subject to the mandatory Roth catch-up in that first year, even if their prior employment was high-paid.
- 403(b) and governmental 457(b) plans. Section 603 applies to 403(b) and governmental 457(b) plans equally to 401(k) plans. Educational and government employers must implement the same way.
- Failed elections. If payroll mistakenly processes pre-tax catch-up for a high-earner, the failure is a plan operational error. Correction under EPCRS may involve recharacterizing the contribution as Roth (with employer paying the employee's missed tax) or distributing the excess. Recordkeepers should have correction procedures in place.
Related recordkeeper and IRS resources
- IRS SECURE 2.0 Act page — comprehensive list of provisions and effective dates
- IRS Notice 2023-62 (PDF) — Section 603 transition relief
- IRS Cost-of-Living Adjustments page — annual contribution limit announcements
- Consolidated Appropriations Act 2023 (full text) — SECURE 2.0 starts Division T
- DOL Employee Benefits Security Administration — ERISA fiduciary guidance
FAQ
Does the Roth catch-up mandate apply to former employees?
Once a participant separates from service, they are no longer making catch-up contributions through the employer's plan. Section 603 applies to active employee deferrals through the employer's payroll. Former employees can roll their plan balance into an IRA but cannot make new catch-up contributions to the former employer's plan.
What if our plan does not permit Roth catch-up?
If the plan does not permit Roth catch-up at all, high-earners cannot make any catch-up contribution in 2026. The plan can be amended to add Roth catch-up; the amendment is generally allowed retroactively if adopted by the plan amendment deadline (December 31, 2026 for many plan types).
How do payroll vendors handle the FICA wage cutoff?
Most major payroll vendors track the prior-year FICA wages and apply the threshold automatically at the start of each plan year. Smaller vendors and in-house systems may require manual updates. HR should confirm with their payroll provider that the 2026 threshold is being applied correctly.
Does the Roth treatment hurt high-earners?
It depends on the participant's tax bracket now versus expected retirement tax bracket. Roth contributions are after-tax, so they do not reduce current taxable income but grow tax-free. For a high-earner in the 32-37% bracket who expects a lower bracket in retirement, Roth catch-up may be less tax-efficient than pre-tax. For a participant who expects a similar or higher bracket in retirement, Roth catch-up may be advantageous. The mandate removes the choice for catch-ups specifically.