First Steps Toward Rothification

First Steps Toward Rothification: the Roth Catch-up Requirement for High Earners

As we explained in our previous blog, Delaware’s Senator Roth and his Roth Account Legacy, Rothification refers to a policy shift requiring the use of Roth after-tax contributions or accounts.

The Setting Every Community Up for Retirement Enhancement Act (SECURE) 2.0 may very well have established the first Rothification requirement, by requiring catch-up eligible High Earners to make catch-up contributions to their 401(k), 403(b), and 457(b) plans on a Roth basis, effective January 1, 2026. High Earners are members of the High Earning Group, new defined terms used when referring to the new Roth catch-up mandate applying to individuals who met a $145,000 FICA Wage Threshold in the prior year.

$145,000 Wage Threshold

The $145,000 wage threshold is determined based on a participant’s FICA wages for the preceding calendar year, subject to cost-of-living increases and does not need to be prorated for the first year of employment. According to this definition, nobody can be considered a High Earner during their first year of employment, since the prior year wages would be zero for that individual’s new employer. Each employer makes the determination using its own payroll’s FICA wages, such that affiliated and unrelated employers are not relevant. It’s important to understand that the look-back process is similar to the one for identifying Highly Compensated Employees used in the discrimination testing for qualified plans, but a High Earner is NOT the same as the Highly Compensated Employee. Additionally, Roth Feature Must Be Universally Available – An employer is not required to offer a Roth feature, but the Roth feature cannot be available only to the High Earning Group. If a plan permits the High Earning Group to make catch-up contributions as designated Roth contributions for a plan year, such plan must allow all other catch-up eligible participants to also make designated Roth contributions. Catch-up contributions on a Roth basis is an option that must be available to all participants.

Pre-tax catch-up eligibility is only available to participants who are not High Earners. If a plan does not include a Roth feature, the High Earning Group will not be permitted to make any catch-up contributions under that plan. For the High Earning Group, in a plan without a Roth feature, the maximum amount permitted under applicable law is $0. Other catch-up-eligible participants can still contribute the maximum catch-up of $7,500, as indexed, or the super catch-up of $11,250 (as indexed) for individuals between the ages of 60 and 63. This potential disparity in the availability of catch-up contributions may seem discriminatory, but it’s hard to imagine why an employer would not simply add a Roth feature to make the opportunity truly universal.

Speaking of discrimination, catch-up contributions are not subject to discrimination testing or to any other applicable limit, such as the 402(g) deferral limit, the Section 415 annual additions limit, or the plan-imposed limit. The mechanics of how much of a person’s contribution is a catch-up could be more complicated, because a contribution cannot be considered a catch-up until it exceeds a legislative or plan limit. Please refer to our blog Catch-Up Contributions Must Exceed Some Limit for an in-depth discussion.

All Roth Contributions Count

All Roth contributions made by a member of the High Earning Group, including elective contributions that are not catch-up contributions, count toward the Roth catch-up contribution requirement. Using the 2025 contribution limits of:

If the participant elected to contribute the maximum, with half the contributions pre-tax and half Roth, then the participant will have already made $11,750 ($23,500/2) in Roth contributions by the time the participant’s contributions exceed the 402(g) legislative limit. It means that the requirement for the catch-up contributions to be made on a Roth basis would have already been met. Roth contributions of $11,750 would already exceed the $11,250 super catch-up limit for participants between the ages of 60 and 63. No adjustments need to be made to the source code of this participant’s subsequent contributions in order to meet the Roth catch-up requirements. All Roth contributions count. Unlike the classification of a contribution as a catch-up discussed in our blog ( insert the name of the super catch-up blog here), the timing of Roth contributions amounting to the catch-up dollars does not matter. Since High Earners can be identified at the beginning of the year, employers will be able to assess whether their elections will comply with the rules and advise the participant to adjust accordingly.

Deemed Elections or Automatic Discontinuance

If the High Earner elects only pre-tax deferrals, then Roth catch-up contribution elections will be assumed, even without a participant’s authorization. However, since the contribution amounts are taxable and will have financial repercussions, High Earners in this situation must be given an opportunity to make a new election, so that they can stop making elective contributions. If the participant doesn’t elect to stop contributing, deemed Roth catch-up contributions are excludable from the participant’s gross income on the payroll and when the Roth contribution withholdings are remitted, they are allocated to the Roth source-code in the participant’s account.

Alternatively, employers of High Earners who elected only pre-tax deferrals can automatically discontinue their contributions when they reach the 402(g) deferral limit unless they make an affirmative election to make Roth catch-up contributions. Employers can implement either a deemed election or automatic discontinuance approach for Roth catch-up contributions, and consistency in application is crucial.

Reclassifications to Roth Catch-up Due to Exceeded Limit

If the ADP test requires the reclassification of deferrals as a catch-up, the source of the reclassified contributions must be taken into account. Since a reclassification to catch-up for a High Earner involves a change in source-code from pre-tax to Roth, the taxability of the reclassified amount can be reflected on a corrected Form 1099-R like an in-plan Roth conversion, or on a corrected Form W-2.

If a contribution exceeds an employer-provided annual limit, or the Actual Deferral Percentage (ADP) test limit, then the deadline to reclassify the pre-tax contribution as a Roth catch-up, or to issue a corrective distribution, as applicable, is 2 ½ months after the close of the plan year in which the contribution was made (or six months for plans that include an eligible automatic contribution arrangement).

If a contribution exceeds the annual 402(g) elective deferral limit, then the deadline to reclassify the pre-tax contribution as a Roth catch-up, or to process a corrective distribution, as applicable, is April 15 of the calendar year following the year in which the contribution was made.

Rothification Complications: Short-Term Revenue, Long-Term Loss

Despite the administrative burden added by the Roth-catchup requirement, plans cannot require that all catch-up contributions be made on a Roth basis to simplify the administration of this requirement.

The High Earning Group Roth Catch-up requirement was passed to pay for other tax benefits of the SECURE 2.0 Act. The complicated Roth Catch-up provisions make it clear that Congress will prioritize short-term revenue creation over the simplification of the tax code. Rothification raises revenue in the ten-year budget window used by the Congressional Budget Office to evaluate bills. However, the mandated Roth catch-up contributions only generate more revenue than traditional contributions in the short-term. Rothification is forcing participants to play a long game that is likely to be to their advantage, while costing the government in the long run. Unknowingly, the Feds are Rothifying the High Earners for their own good.