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.
What’s Changing?
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, you will participants will not be 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.
- Let us know if your plan currently excludes part-time employees or uses alternative eligibility methods.
Reach out to us at [email protected] to learn more.