We want to inform you about an important change to retirement plan catch-up contributions that will take effect on January 1, 2026, as part of the SECURE 2.0 Act.
Beginning in 2026, participants that are age 50 or older and earned more than $145,000 in FICA wages in the previous calendar year will be required to make any catch-up contributions as Roth (after-tax) contributions. This rule applies to all 401(k), 403(b), and governmental 457(b) plans.
Key Details:
- FICA wages include salary, tips, bonuses, commissions, and taxable fringe benefits (Box 3 on your W-2).
- The $145,000 threshold is indexed annually for inflation.
- If your plan does not offer Roth contributions, plan participants will not be able/eligible to make catch-up contributions if they exceed the wage threshold.
- New limits for ages 60–63: Starting in 2025, participants in this age group may contribute an additional $3,750 super catch up contribution (indexed), which must also be Roth if the wage threshold is met.
What You Need to Do:
- Ensure your plan offers a Roth contribution option.
- Coordinate with payroll providers and the plan’s record keeper to identify impacted participants and adjust contribution processing.
- Review your employees’ 2025 earnings to determine which participants may be impacted.
- Check your plan’s salary deferral election options and help any impacted participants update their elections if necessary.
- Have participants contact the plan’s financial professional to understand how Roth contributions may affect their retirement strategy.
- Educate employees about the upcoming changes and provide support for updating elections.
Changes for Long-Term Part-Time Participants:
- Effective January 1, 2025, LTPT employees must have worked at least 500 hours in each of two consecutive 12-month periods.
- Employees must be 21 years of age or older.
- Service prior to January 1, 2021 (for 401(k) plans) and January 1, 2023 (for 403(b) plans) is excluded from eligibility and vesting calculations.
- These changes are designed to expand retirement savings opportunities for part-time workers who have demonstrated long-term commitment to their employers.
What LTPT Employees Are Eligible For:
- Elective salary deferrals to the retirement plan.
- Employer contributions (matching or non-elective) are optional and at the discretion of the plan sponsor.
- Vesting begins once the employee satisfies the LTPT eligibility criteria, with one year of vesting credit for each year of 500+ hours of service.
Plan Sponsor Considerations:
- Track hours accurately for part-time employees to determine eligibility.
- Decide whether to include LTPT employees in employer contributions and nondiscrimination testing.
