Over 50 and Earning Over $150K? Your 401(k) Catch-Up Just Changed

If you own a small or mid-size business, your 401(k) is the plan you sponsor for your team—and an essential tool on the path to your own retirement. But be sure you are keeping up with regulations: a SECURE 2.0 rule mandates that if you’re 50 or older and earned more than $150,000 in FICA wages from your company last year, your catch-up contributions must go into the plan as a Roth contribution—-after tax. While 2026 has been treated as a “good faith” transition period, time’s running out to get your plan up to speed. On January 1, 2027, the IRS final regulations take full effect, and as plan sponsor, making sure the rule is applied correctly is your responsibility. Here’s what you need to know–and do.

The Roth Catch-Up Rule at a Glance

First, a quick definition. A catch-up contribution is an extra amount that employees aged 50 and older can put into their 401(k) on top of the regular annual limit. It’s designed to help people closer to retirement make up for years when they saved less.

• Who the new catch-up regulation affects: Participants age 50 and older whose prior-year FICA wages (Form W-2, Box 3) from the employer sponsoring the plan topped $150,000. For 2027, that threshold is projected to rise to $155,000, based on 2026 wages. (The IRS is expected to confirm soon.)
• What changes: Only the catch-up dollars must be Roth. Regular deferrals can still go in pre-tax.
• How much is at stake: For 2026, catch-up limits are $8,000 for ages 50 and up, and $11,250 for ages 60 to 63 (Milliman).
• When: The requirement took effect January 1, 2026. The IRS final regulations generally apply starting in 2027.
• The catch for plans without Roth: If your plan doesn’t offer a Roth option, affected employees can’t make catch-up contributions at all (EY).

Are You the High Earner?

In many small and mid-size companies, the owner, a senior partner, or a key executive is often both over 50 and the top earner on payroll. That makes the person who signs off on the retirement plan the person most likely to be affected by the Roth catch-up rule.

How you’re paid matters, though. The test looks only at FICA wages. If you own an S corporation and pay yourself a W-2 salary, those wages count. If you have other arrangements, you might not be subject to the mandate, however much you earn. It’s wise to check with your accounting and legal advisors. You’ll want to avoid the surprise of finding out in 2027 that perhaps given your owner arrangement you are exempt, while you have W-2 managers who are not. As the retirement plan sponsor, you must ensure that each person’s contributions are handled correctly. 

Why One High Earner Makes It a Plan Issue

Many SECURE 2.0 features are optional. The Roth catch-up provision is not.  As one benefits expert told SHRM, the rule “requires action on the part of defined contribution plan sponsors.”

Even one affected employee raises questions only the sponsor can answer. Should the plan add a Roth feature? Should catch-ups automatically be treated as Roth for high earners? Does the plan document match what payroll is actually doing?

The consequences for errors are real, and auditors and attorneys are predicting a wave of noncompliance issues facing businesses as the clock ticks toward the end of 2026–and the “good faith” transition period. The IRS has taken the position that a plan can face disqualification if catch-ups subject to the rule land in a pre-tax account. The final regulations do offer correction methods, but fixing a mistake takes time, money, and professional help.

Relying on a payroll provider doesn’t take the responsibility off your desk as the plan sponsor. Choosing and monitoring service providers is itself a fiduciary duty, a point covered in Avoid Autopilot: Pointers for Plan Sponsors.

January 1, 2027: The Grace Period Ends

The good-faith reading of SECURE 2.0 and the catch-up provision was never intended as a free pass. As EY noted when the rules were finalized, “taxpayers cannot simply ignore the Roth catch-up requirement in 2026.” At the onset of 2027, the more detailed final regulations apply in full.

Accounting firm RSM advises sponsors to carefully coordinate with payroll providers, recordkeepers, and administrators so systems can track the wage threshold and Roth eligibility. Bottom line, before the first payroll of 2027, consult your ERISA attorney, tax adviser and third-party administrator as you work to: 

1. Identify who’s affected. Ask payroll which participants 50 and older had 2026 FICA wages above the 2027 threshold.
2. Confirm your plan offers Roth. If it doesn’t, talk with your adviser before high earners lose their catch-ups.
3. Get the process in writing. Ask payroll and your recordkeeper how they route catch-ups for affected employees.
4. Check your plan document. Required SECURE 2.0 amendments for most plans are due December 31, 2026, but your plan must already operate in compliance before the document is formally amended. See Plan Amendments In The Home Stretch of 2026.
5. Tell your people. Let affected employees know what will change on their paychecks (and be mindful of the implications for yourself too).
6. Document your decisions and actions. Meeting notes are evidence of a prudent process if challenges to your fiduciary leadership surface later.

Good To Know

Q: Which wages count toward the threshold? A: Social Security wages reported in Box 3 of your W-2 from the employer sponsoring the plan.

Q: Can my regular 401(k) deferrals stay pre-tax? A: Yes. The Roth requirement applies only to catch-up contributions.

Q: What if our plan doesn’t offer Roth? A: Employees above the threshold can’t make catch-up contributions until the plan adds a Roth option.

Q: Does our ERISA Bond cover a mistake like this? A: No. The ERISA Fidelity Bond protects plan assets from theft and fraud. Administrative errors and fiduciary claims fall under fiduciary liability insurance.

Mistakes Happen. Be Covered When They Do.

The Roth catch-up rule is a good example of how plan sponsors get into trouble. There’s no fraud and no bad intent, just a payroll setting, a missed amendment, or a handoff between providers. Under ERISA, sponsors can be held personally liable for those oversights, and defense costs are an out of pocket expense that add up quickly.

Good processes are essential for retirement plan sponsorship, and  insurance is the safety net for the human errors that still slip through. That’s why Colonial Surety Company bundles three essential coverages into one affordable package for retirement plan sponsors:

• ERISA Fidelity Bond: Meets the Department of Labor’s bonding requirement and protects plan assets from theft and fraud.
• Fiduciary Liability Insurance: Protects you personally, covering legal defense when errors, oversights, or allegations arise.
• Cyber Liability Insurance: Helps you meet DOL cybersecurity expectations for the plan with $50,000 of coverage included.

You can’t control every system your plan depends on. You can make sure that when something goes wrong, you aren’t paying for it out of pocket. Get your ERISA Bond and Fiduciary+Cyber Liability Package from Colonial Surety Company today.

Founded in 1930, Colonial Surety Company is rated “A” (Excellent) by A.M. Best and listed on U.S. Treasury Circular 570. For 401(k) plan sponsors, trustees, and retirement plan committees, our ERISA bundle combines the federally required ERISA fidelity bond, fiduciary liability insurance, and cyber liability coverage, and it’s the fastest way to get all three. Quote online in minutes and have coverage in place the same day. A 3-year option locks in your rate, and your bond automatically adjusts as your plan grows. Customers rate Colonial Surety Company 4.8 out of 5 on Trustpilot across more than 6,000 verified reviews.