New Catch-Up Provision for Roth 401(k) Starting in 2026: What You Need to Know

Following up on our first installment from a few weeks ago, we noticed that only 16% of recipients clicked through to read the full email. We know everyone’s inbox is busy, but these new rules have a wide-ranging impact—and we want to make sure you’re in the know! Taking a few minutes to read and start planning now will set you up for success and keep your plan on track for compliance.

Significant legislative changes impacting most 401(k) plans will take effect on January 1, 2026, and will require employer action to ensure compliance. MVP is launching a series of communications to help you navigate these changes, offering clear guidance and actionable steps. This second installment provides the initial planning actions employers should begin taking now to prepare for this upcoming change. Future updates will outline specific steps for employers, so we encourage you to review each message carefully to stay on track with compliance.

Key Takeaways of the Roth Catch-up Provision

• Beginning in 2026, individuals who earn over $145,000 per year and are 50 or older will be required to make catch-up contributions to their 401(k) on a ROTH basis, meaning their contributions will be taxed up front, but their withdrawals in retirement will be tax-free.
• Employers need to ensure the plan document allows for ROTH contributions, update payroll systems to accommodate the new provision and identify the affected individuals.  For plans that utilize MVP’s Prototype document, we will automatically update your plan as needed.
• High earners should evaluate how the new provision fits into their overall retirement strategy and consult with financial advisors to make the best decisions moving forward.

Initial Planning Steps for Employers to Begin Now:

Employers are responsible for identifying which employees will be subject to this new ROTH catch-up provision and ensuring the deferrals are properly transacted in payroll.  The recommended steps below will help get you started with the initial planning: 

1. Review payroll files to identify any employees who are at least age 50 in 2025 and will earn $145,000 or more in FICA wages in 2025.  These high wage earners will be subject to the new rule in 2026.
2. Engage with your payroll provider to determine any payroll reporting changes needed to support this provision.  When coordinating with your payroll provider, consider covering the following points:

• Ensure the payroll company will be ready to handle this new provision beginning 1/1/2026
• Identify how the payroll provider will require you to “code” these high wage earners in the payroll system.  Will there be a special code required?  How is that designated?
• Clarify whether the payroll system will automatically switch a high-wage earner’s deferrals to Roth once they reach the annual deferral limit and begin making catch-up contributions, or if the employer will need to make this change manually

3. Notify your MVP Relationship Manager if your payroll file will change (i.e. columns, etc.), as MVP will need to make our payroll template match the employer’s payroll file exactly. If the template changes the payroll will be rejected once uploaded.
4. Begin to think about correction methods. As a pre-requisite for utilizing the available correction methods to fix a ROTH catch-up error, employers must have procedures in place at the time of the deferral that are designed to result in compliance with the Mandatory Roth Catch-Up rules.  As part of this requirement, the plan must include a deemed Roth catch-up election. This allows employers to withhold catch-up contributions as Roth for high-wage earners to meet the requirement, even if the participant’s deferral election specifies pre-tax contributions.   The deemed Roth Catch-Up Contribution provision must permit participants to subsequently change their elections. We will discuss this topic in more detail in future articles.

This shift presents both challenges and opportunities for retirement savers and understanding the implications of Roth as catch-up contributions will be critical for maximizing long-term retirement savings. Start planning today to ensure your participants are well-positioned for 2026 and beyond!

If you have questions or wish to discuss in more detail, please give your Relationship Manager a call or call us directly at (919) 465-2220