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Roth Catch-Up Contributions for High Earners

In this article:

Background

The SECURE 2.0 Act introduced significant changes to how catch-up contributions are handled for certain participants. Under the new law, catch-up contributions for higher-income employees age 50 and over must now be treated as after-tax Roth contributions, rather than traditional pre-tax deferrals.

This requirement applies to 401(k), 403(b), and 457(b) plans and is officially scheduled to go into effect on January 1, 2026.

  • Who is affected? Any employee age 50 and over whose Social Security wages from the preceding calendar year exceeded $150,000 (indexed for inflation).
  • The Change: Once these “high-earning” employees reach the standard annual contribution limit, any additional catch-up contributions must be designated as Roth. They are no longer eligible to make catch-up contributions on a pre-tax basis.

To manage this transition smoothly, we recommend a phased approach:

Phase 1: Identify High Earners at the Start of the Year

  1. Review 2025 Wages: Identify employees with a 401(k), 403(b), and 457(b) deduction who will be age 50 or older in 2026 and whose 2025 Social Security wages from your business exceeded $150,000.
  2. Mark the Employee Record: In Patriot Software, go to the employee’s Deductions & Contributions page and toggle the “Requires Roth Catchup” field on.
    • Why this matters: Toggling this on tells the software to stop the employee’s pre-tax deductions automatically once they reach the standard IRS limit ($24,500 for 2026). This prevents the system from inadvertently taking catch-up contributions as pre-tax.
  3. Notify the Employee: Let them know that once they hit the standard limit, any further contributions must be made to a Roth account.

Phase 2: Carefully Watch When the Standard Limit is Met

Patriot Software automatically tracks the annual IRS contribution limits. However, keep an eye on employee payrolls.  When you notice the standard IRS contribution has been met, you’ll need to set up and assign the Roth Catch-up contribution to the employee.

Phase 3: Set Up the Roth Catch-Up Deduction and Contribution

Once an employee has reached the standard pre-tax limit and wishes to continue contributing via the catch-up provision, you will need to add or activate a Roth employee deduction and company contribution for them.

How to Set Up Roth Catch-Up Deductions for High Earners

Note: We recommend waiting to add this deduction to an employee’s record until they have reached their traditional pre-tax limit.

1. Add a Roth Deduction at the Company Level

If you do not already have a Roth deduction code active in your company settings:

  1. Go to Settings > Payroll Settings > Deductions & Contributions.
  2. Click Add Deduction.
  3. Select the Deduction Type (e.g., Roth 401(k), Roth 403(b), or Roth 457(b)).
  4. Enter a Description (e.g., “Roth HE Catch-Up”).
  5. Click Save.

2. Add a Roth Employer Contribution at the Company Level

You will need to create a new employer contribution for the new Roth HE Catch-Up you have created.

  1. Go to Settings > Payroll Settings > Deductions & Contributions.
  2. Click Add Contribution
  3. Select the Contribution Type (e.g., Roth 401(k), Roth 403(b), or Roth 457(b)).
  4. Enter a Description (e.g., “Roth Catch-Up Employer”).
  5. Select the “Roth HE Catch-Up” you have created in the drop down that reads “For Deduction.” This way the employer contribution only is added if the “Roth HE Catch-Up” deduction is made.
  6. Input the formula, i.e. how you want the contribution to be calculated flat amount, single formula, tiered formula, % of pay, etc.
  7. Input the amount for the contribution formula or flat default amount. You can override flat amounts on employees if needed.
  8. Click Save.

3. Assign the Deduction and Contributions to the Employee

On the first paycheck where the employee is eligible to begin catch-up contributions:

  1. Go to Payroll > Employee List > [Employee Name].
  2. Click Deductions & Contributions.
  3. Click Add New Deduction and select the Roth HE Catch-Up you created.
  4. Enter the Method (Fixed Dollar or % of Gross) and the Amount.
  5. Under Catch-Up, select either Yes: 50+ or Yes: 60-63.
  6. Click Save.

4. Assign the Contribution to the Employee

  1. Go to Payroll > Employee List > [Employee Name].
  2. Click Deductions & Contributions.
  3. Click Add New Contribution and select the Roth Employer Catch-Up Contribution you created.
  4. Click Save.

The software will now withhold these funds as after-tax Roth contributions until the employee reaches their applicable catch-up limit ($8,000 for ages 50–59; $11,250 for ages 60–63).

At the Beginning of Each Year: Inactivate the Roth 401(k)

💡You will need to make the Roth Inactive at the beginning of each year when the 401(k) starts over again for your employees.

  1. Go to Settings > Payroll Settings > Deduction and Contributions
  2. Click Edit in the row of the Roth 401(k) Catchup deduction
  3. Uncheck the “Active Box”
  4. Click “Yes” to the warning that reads: “You will see a warning that reads: You are choosing to inactivate this deduction. Doing so will cause all employees with this deduction to have it inactivated as well. Are you sure you want to inactivate this deduction?”
  5. Click “Save.”

Each year, you’ll track the 401(k) for employees and then reactivate Roth 401(k) at the company level and on each employee when the 401(k) standard deduction has been met.

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