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Roth catch-up: New regulations for retirement plans from 2026!
Learn how the SECURE 2.0 law affects Roth elections in 403(b) and 457(b) plans and what it means for investors.
Roth catch-up: New regulations for retirement plans from 2026!
Current developments surrounding the new Roth catch-up rules created as part of the 2022 SECURE 2.0 Act shed light on important aspects of retirement planning in the United States. Public universities that offer both 403(b) and 457(b) government plans are particularly challenged with implementing these new regulations. As plansponsor.com reports, one such institution plans to introduce a deemed or spillover Roth election in order to effectively apply the rules.
A key element of this new rule is that deferrals in excess of the 402(g) deferral limit should be considered Roth contributions for individuals with income over $145,000 (indexed). On the positive side, no separate Roth deferral elections are required for these participants. This makes implementation a bit easier for employers and employees.
Roth catch-up rules in detail
The U.S. Treasury Department and the Internal Revenue Service have published final regulations regarding these catch-up contributions. As irs.gov explains, these rules are intended to designate catch-up contributions starting at age 50 as after-tax Roth contributions. This guides plan administrators to comply with the new requirements and implement them correctly.
An interesting point emerging from the adjustments to the final regulations is the ability for plan administrators to aggregate the wages of participants from different employers from the previous year. This is intended to help determine whether participants are subject to the Roth catch-up requirement. Amendments to correct noncompliances and to implement a deemed Roth election are also included.
Special Challenges for 457(b) Plans
Despite all the improvements, there are still uncertainties, particularly for 457(b) plans. A university recordkeeper has clarified that the Deemed Roth election can be used for the 403(b) plan, but not for the 457(b) plan. Experts agree that there is indeed a gap here and recommend retaining experienced ERISA legal counsel to properly implement the provisions.
The final regulations are effective primarily for contributions in taxable years beginning after December 31, 2026. However, there is a flexible option to implement the Roth catch-up requirement for earlier tax years as well, provided it is a proper, good faith interpretation of the legal provisions. This flexibility alone can help a variety of plan administrators adapt to the new regulations more quickly.
In summary, the new Roth catch-up rules represent a complex but important issue for many employees and employers. As opportunities grow, it remains crucial to be well-informed and prepared to take full advantage of these rules.