John E. Chapman
Chief Executive Officer
Overview
Effective January 1, 2026, the SECURE 2.0 Act requires certain high-earning employees aged 50+ to make Roth catch-up contributions (after-tax) to their retirement plan.
This rule applies to 401(k), 403(b), and 457(b) plans and will require updates to plan design, payroll coordination, and participant communication.
Clearwater Capital Partners is here to help you prepare.
Who is Affected?
Employees who meet all of the following criteria:
- Age 50 or older
- Eligible to make catch-up contributions
- Had FICA wages over $145,000 (adjusted annually) in the previous calendar year
- Participate in a 401(k), 403(b), or 457(b) governmental plan
For these employees, all catch-up contributions must be Roth starting in 2026.
Who is Not Affected?
- Employees with FICA wages under $145,000
- Employees who had two employers in the previous year but did not exceed $145,000 at either
- Self-employed individuals (e.g., partners or sole proprietors without FICA wages)
They may continue to make pre-tax or Roth catch-up contributions (if the plan allows both).
Key Dates
Now: Begin plan design review and payroll coordination
Jan 1, 2026: Roth catch-up rule becomes effective
Post-2026: IRS regulations apply 6 months after final publication
Until then, employers must follow a reasonable, good-faith interpretation of the law.
Action Plan for Employers
1. Plan Design Review
- Does your plan allow Roth contributions?
- Yes ➝ No action is required
- No ➝ Affected employees cannot make catch-up contributions after 2025 unless plan is amended to add the Roth option
2. Payroll Coordination
- Ensure FICA wage tracking for the prior calendar year
- Identify impacted employees ahead of each plan year
3. Employee Communication
- Explain Roth catch-up rules to impacted employees
- Clarify the difference between pre-tax and Roth
- Prepare for increased questions around take-home pay and taxes
4. Evaluate Deemed Roth Elections
- Plans can automatically treat catch-up contributions as Roth for affected employees (with opt-out option)
- Must offer a clear, effective way to make a different election
Error Correction Options
If pre-tax catch-up contributions are made in error, the IRS allows:
1. W-2 Correction Method
- Move contribution (excluding earnings) to Roth account
- Adjust W-2 to reflect Roth income
2. In-Plan Roth Rollover
- Move contribution plus earnings to Roth
- Report the full amount as taxable income on Form 1099-R
Clearwater can help determine which correction method applies and manage compliance steps.
What If My Plan Doesn’t Allow Roth Contributions?
You can still operate the plan, but:
- High earners cannot make catch-up contributions beginning in 2026
- The plan cannot require all participants to make catch-up as a Roth
- Plan must continue to meet nondiscrimination requirements
We recommend reviewing your plan design now to determine the best course of action.
How Clearwater Capital Partners Supports You
We can provide hands-on support to help clients prepare for Roth catch-up compliance:
Plan Review & Amendments ✔
Evaluate plan design, assist with changes
Payroll & Vendor Coordination ✔
Help align systems and flag eligible participants
Employee Education ✔
Provide communication templates and FAQs
Regulatory Compliance ✔
Keep you updated on the final IRS guidance
Correction Management ✔
Guide the correction process and documentation
Next Steps
If you haven’t already started preparing for this change, now is the time.
Contact your Clearwater Capital Partners advisor to:
- Review your plan design
- Discuss Roth adoption
- Coordinate payroll integration
- Prepare employee communications
We’ll help you be ready for 2026 — and beyond.
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