IRS issues final regs on new Roth catch-up contribution rule

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The IRS issued final regulations (T.D. 10033) on Sept. 15 addressing the new Roth IRA catch-up contribution rule enacted as part of the SECURE 2.0 Act in December 2022. These final regulations generally follow the proposed regulations issued in January 2025, with some changes made in response to comments the IRS received. The new rule generally requires all catch-up contributions to be made on a Roth basis for employees with wages exceeding $145,000.

Catch-up contributions are additional elective deferrals that participants 50 or older can make to certain tax-favored retirement plans, such as 401(k), 403(b) and governmental 457(b) plans, in excess of the otherwise applicable limits. The limit on catch-up contributions is indexed for inflation and reached $7,500 in 2025.

Before SECURE 2.0, catch-up contributions could be made on either a pre-tax or Roth basis (if permitted by the plan sponsor), and all eligible participants under the plan generally had to be allowed to make the same elections. SECURE 2.0 made several changes to the rules, including requiring catch-up contributions to be made on a Roth basis for participants whose wages from the employer for the preceding calendar year exceeded $145,000 (indexed for inflation).

In addition, SECURE 2.0 provides that if a plan allows an eligible participant who is subject to the new rule to make catch-up contributions on a Roth basis, then eligible participants who are not subject to the new rule must be permitted to make catch-up contributions on either a pre-tax or Roth basis. These two changes are collectively referred to as the “new Roth catch-up contribution rule.”

The final regulations also address certain other changes made by SECURE 2.0 to the catch-up contribution rules, including the increase in the applicable dollar catch-up limit in the case of an eligible participant who attains age 60, 61, 62 or 63 during a tax year beginning after 2024. The increased limit is 150% of the otherwise applicable dollar limit for the tax year, or $11,250 for 2025).

As originally enacted, the new Roth catch-up contribution rule was scheduled to be effective for tax years beginning in 2024. However, in August 2023 the IRS issued a notice to administratively delay the effective date for two years, until 2026, to facilitate an orderly transition for compliance with the new rule. The IRS also indicated that plan sponsors could elect to begin applying the proposed regulations with respect to contributions in tax years beginning in 2024, the original statutory effective date.

The final regulations generally apply to catch-up contributions made in tax years beginning in 2027, but they do not extend or modify the administrative transition period. As a result, all plans that allow eligible participants to make catch-up contributions must begin to comply with the new rule no later than the 2026 tax year. Prior to the applicability date of the final regulations — the 2026 tax year, or the 2024 or 2025 tax year for plan sponsors that adopted the new rules earlier than required — the IRS said a reasonable, good-faith interpretation standard applies with respect to the statutory provisions reflected in the final regulations. 

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