Prepare wage records, Roth features, employee communications and payroll tests for 2026. Separate statutory timing from later regulatory applicability.

November 10, 2025 · Financial Forte Staff

Historical article: prepared retrospectively using information available as of November 10, 2025.

Roth catch-up contributions are a payroll project as well as a retirement-plan rule. An employer needs to identify affected employees, communicate the change and make sure payroll and the recordkeeper classify the same dollars consistently. Waiting until someone reaches a contribution limit can leave little time to resolve a setup problem.

For the ordinary private-employer case, prepare for the higher-wage Roth catch-up requirement in 2026. The administrative transition period generally ends December 31, 2025. Final regulations issued in September 2025 generally apply in 2027, but that later regulatory applicability date does not extend the general transition period.[1][2]

Keep the implementation dates and limits distinct

The final regulations permit a reasonable, good-faith interpretation of the statutory provisions before their applicability date. They also address special timing for certain governmental and collectively bargained plans. Have the administrator identify the rule for the actual arrangement rather than assuming every plan follows one implementation schedule.[1]

As of November 10, 2025, the annual IRS announcement of 2026 retirement limits is still pending. Do not enter an assumed inflation-adjusted number into production payroll or treat numerical examples in the regulations as official announced limits. Build the process now and insert the applicable verified amounts when available.

The requirement concerns catch-up contributions by affected participants, not every contribution a higher-paid employee makes. Ordinary elective deferrals and age-based catch-up contributions need to be distinguished under the plan's rules. It is also separate from the rules governing whether a person can contribute to a Roth IRA.[1]

A person who is not eligible for age-based catch-up contributions does not become eligible merely by having high wages. Conversely, a catch-up eligible employee below the applicable wage threshold may still choose Roth treatment if the plan offers it. Payroll should support the actual rule and elections rather than infer the answer from salary alone.

Use the correct prior-year employer wage information

The statutory test looks to qualifying wages from the employer sponsoring the plan in the preceding calendar year. It is not simply household AGI, current-year salary, account balance or the employee's income tax bracket. For 2026 preparation, the relevant employer wage records come from 2025.[1]

The final regulations define the FICA wage measure and address circumstances such as multiple employers, optional wage aggregation and employees without the relevant wages. The pre-applicability good-faith standard includes specified flexibility concerning the wage measure. Ask payroll and the administrator to document the method they will use rather than independently choosing different W-2 fields.[1]

Self-employment income is not automatically the same as the qualifying employer wages in this test. A new hire or an employee moving among related entities can also require specific review. Do not assume that a related-company transfer always resets the test or that every dollar paid anywhere in a corporate group must automatically be combined.

Create a preliminary affected-employee report, then reconcile it to final prior-year wage data. Define how late payroll corrections will reach the recordkeeper. A report generated before year-end bonuses or corrections are processed may need to change.

Explain the paycheck effect with a clear example

Consider a hypothetical private-employer plan that offers both pretax and Roth contributions and has completed the required setup. Two employees will be age 58 during the contribution year. After the applicable threshold is verified, one employee's qualifying prior-year wages are $5,000 above it and the other's are $5,000 below it.

Assume each is eligible to make $6,000 of valid catch-up contributions within the applicable announced limits. The employee above the threshold must have the affected catch-up contributions treated as Roth. The employee below it is not required by this wage test to use Roth and, under the assumed plan options, may elect pretax treatment.[1]

At an illustrative 24% federal marginal income tax rate, $6,000 of pretax contributions would reduce current federal income tax by $1,440 under a simplified calculation. Roth contributions would not provide that current income-tax reduction. Both employees could put the same $6,000 into the plan, but the current take-home-pay effect would differ by the illustrated $1,440 of federal income tax, assuming all other factors remain unchanged.

This is not a claim that Roth is inherently better or worse, and it is not a payroll withholding quote. It excludes other taxes and interactions. The useful communication is that the required tax treatment can change current cash flow even when the amount saved is unchanged.

Test the full payroll-to-recordkeeper process

Confirm that the plan has the required Roth features and that any amendments, election procedures and employee notices are coordinated. If a plan lacks Roth capability, do not assume affected participants can continue making pretax catch-up contributions. Obtain a documented plan-specific decision before communicating their options.[1]

Test how contributions will be identified, transmitted, posted and corrected. The final regulations address deemed Roth elections and correction methods, but those mechanisms have conditions. They should not be improvised after payroll discovers an error.

For an ERISA-covered plan, administering contributions accurately and prudently selecting and monitoring providers can involve fiduciary responsibilities. The employer should assign responsibility for data, notices and reconciliations even when vendors perform much of the work. A contract does not eliminate the need to confirm that the operating process functions.[3]

Before the first affected payroll, review a sample employee above the threshold, one below it and an exception case identified by the administrator. Confirm the actual results in both systems and retain the test records with the named owner of any unresolved issue. That testing can reduce correction costs and help employees understand a change that otherwise might look like an unexplained reduction in take-home pay.

Related reading

Have more questions about Roth catch-up implementation and retirement plan payroll? Email Dave at dave@financialforte.com to discuss your questions and next steps.

The contact invitation is current; it does not imply this contact path existed on the historical reference date.

Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.

Sources

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