Your Catch-Up Contributions Must Be Roth in 2026

#What SECURE 2.0 Section 603 actually says

Congress passed this rule back in 2022 as part of the SECURE 2.0 Act. It sat unclear for three years while the IRS worked out how to apply it. On September 15, 2025, the IRS and the Treasury Department published final regulations (Treasury Decision 10033) that lock in how it works starting January 1, 2026.

The rule in plain words. Say you are age 50 or older and you make “catch-up” contributions to a 401(k), 403(b), or governmental 457(b) plan. Once your wages cross a set dollar line, those catch-up dollars must be Roth (after-tax) instead of traditional (pre-tax).

A catch-up contribution is the extra amount the IRS lets you add on top of the normal deferral limit once you hit age 50. For 2026, the normal limit is $24,500. The standard age-50 catch-up adds another $8,000, for a combined $32,500. If you are 60, 61, 62, or 63 in 2026, the “super catch-up” adds $11,250 instead, for a combined $35,750. This new Roth mandate applies to both versions of the catch-up. It does not touch your regular $24,500 deferral. You can still choose Roth or traditional for that piece, same as always.

#The wage test, line by line

The threshold for 2026 is $150,000, up from $145,000 the year before. The IRS raises it most years to keep pace with wage growth, the same way it raises the contribution limits.

Here is exactly what gets tested:

1. Whose wages. Only YOUR wages. Not your spouse’s income. Not your household income. Not your business’s total revenue or net profit.
2. From where. Only wages from the specific employer that sponsors the retirement plan you’re contributing to. If you have wages from more than one employer sponsoring different plans, our reading of the “employer sponsoring the plan” language is that each plan’s test looks only at what that one employer paid you. We have not found guidance addressing that specific combination directly, so treat it as our reading rather than a settled rule, and confirm it before relying on it.
3. What counts as wages. FICA wages, meaning wages subject to Social Security and Medicare tax under Internal Revenue Code Section 3121(a). This generally shows up in Box 3 of your prior-year W-2. It is a distinct legal category from your total compensation, your taxable income, or your K-1 profit share.
4. Which year. The PRIOR calendar year. Your 2026 catch-up contributions are tested against your 2025 W-2 wages from that plan’s sponsor. Next year, the 2027 test will look at your 2026 wages, and so on, every year, on a rolling basis.

If your prior-year wages from that employer were $150,000 or less, you can still choose traditional (pre-tax) for your catch-up, same as before this rule existed. If they were more, the catch-up must be Roth. There is no partial application and no phase-in. It is a hard line.

#Why this rule hits S-corp owners differently

For most W-2 employees, this test is passive. Your employer sets your pay based on your job, and whether you cross $150,000 depends on the market, your title, your raises.

An S-corp owner-employee is different. You set your own W-2 wage. The number that has to go on your W-2 is your reasonable compensation, the salary the IRS expects an S-corp owner to pay themselves for the work they actually do, based on job duties, time worked, and what similar roles pay in the market. That number is a judgment call you and your tax preparer make every year, and until now it mostly mattered for one thing: how much Social Security and Medicare tax you owe.

Now it does double duty. The exact same wage figure that drives your payroll tax bill also decides, one year later, whether your catch-up contributions are forced into Roth. Set reasonable comp at $190,000 this year, and next year’s catch-up on your Solo 401(k) is Roth-only. Set it at $130,000, and it isn’t. This is not a reason to lowball reasonable comp. The IRS expects that number to be defensible on its own merits, not picked to dodge a different rule. But it is a real, dollar-shaped side effect of a decision you were already making for other reasons. Our Solo 401(k) stacking guide walks through how that same wage number also controls how much you can contribute in the first place. The two effects move together.

#The contrast that matters: no W-2 wages, no mandate

Here’s the part that surprises people. A sole proprietor, a single-member LLC taxed as a disregarded entity, or a partner in a partnership typically has no FICA wages at all. Their business earnings show up as self-employment income (Schedule C or a K-1), not as Section 3121(a) wages from an employer. The final regulations are explicit about this: someone who “did not have any FICA wages from the employer sponsoring the plan for the preceding calendar year” is not subject to the Roth catch-up requirement, regardless of how much they earned.

That means a partner clearing $300,000 in self-employment income can still make a fully pre-tax catch-up contribution in 2026, while an S-corp owner-employee earning far less in W-2 wages, but over $150,000, cannot. The rule tracks the FORM of the income (wages versus self-employment earnings), not the AMOUNT.

This asymmetry does not make an S-corp election a bad idea by itself. The S-corp vs. sole proprietor math is usually driven by payroll tax savings that dwarf this effect. But it is one more line item to weigh when you set your reasonable comp number each year, especially once you’re within a few years of 50.

#What happens if you don’t pick Roth yourself

Plans are allowed, but not required, to build in what the IRS calls a “deemed election.” Under this approach, if you’re subject to the mandate and you haven’t made an active choice, the plan automatically treats your catch-up dollars as Roth for you. The final regulations require that if a plan uses this deemed-election approach, it must still give you a real chance to make a different, affirmative election if you want to. The deemed treatment can’t be the only door.

Whether your specific plan works this way depends entirely on how the plan document is written. Some plans instead simply stop accepting catch-up contributions from an affected participant until that person actively elects Roth. Ask your plan administrator or third-party administrator which approach your plan uses before year-end. The two outcomes (auto-converted to Roth vs. contributions paused) are very different, and you don’t want to find out which one applies to you after the fact.

#A worked example

Denise owns an S-corp and runs her own Solo 401(k) through it. She turns 55 in March 2026, so she qualifies for the standard age-50 catch-up, not the 60–63 super catch-up. Her S-corp paid her $190,000 in W-2 wages in 2025, set as her reasonable comp for the work she does running the business.

Because $190,000 is more than the $150,000 threshold, here’s what happens to her 2026 Solo 401(k) contributions:

• Regular deferral: $24,500, her choice, traditional or Roth, unaffected by this rule
• Catch-up: $8,000, and because her plan offers Roth catch-ups, it must go in as Roth rather than pre-tax
• Combined employee deferral: $32,500

If Denise keeps her regular deferral traditional, that $24,500 is left out of her taxable wages this year. It is an exclusion from wages rather than a deduction she claims on her return, though the effect on this year’s tax is similar. Her $8,000 catch-up gets no such exclusion now, but it will never be taxed again, including all its future growth, once she takes qualified withdrawals in retirement.

Compare that to Marcus, a law firm partner who is also 55 and made $310,000 in self-employment earnings (reported on a K-1) in 2025. Marcus has no FICA wages from an employer, so none of this applies to him. He can put his full $8,000 catch-up in as traditional, pre-tax, exactly as he could before this rule existed, even though his income is well above Denise’s.

#Common questions

Does this apply to my SIMPLE IRA or SEP-IRA? No. The mandate applies only to 401(k), 403(b), and governmental 457(b) plans. SIMPLE plans and SEP-IRAs are not covered by Section 603 at all.

Does this affect my regular IRA catch-up contribution? No. The IRA catch-up (a separate, smaller amount under a different section of the tax code) is not touched by this rule. This rule only reaches 401(k)-type plan catch-ups.

My S-corp is brand new. I had no W-2 wages from it in 2025. Am I subject to the mandate for 2026? No, not for 2026. The test looks at your PRIOR-year wages from that specific plan’s sponsor. If your S-corp didn’t exist yet, or didn’t pay you wages, in 2025, there’s nothing to test against for 2026. It applies the year after any year in which your wages from that sponsor cleared the threshold, whether or not that was a full twelve months. A high-wage partial year still counts.

Can I still choose Roth for my catch-up if I’m under $150,000? Yes. The mandate only forces Roth treatment above the threshold. It never forbids Roth below it. You’ve always been free to choose Roth voluntarily, and that hasn’t changed.

Should I lower my reasonable comp to duck under the $150,000 line? Be careful here. Reasonable comp has to be defensible on its own facts, based on the actual job you do and what that role pays in the market, not reverse-engineered to avoid a different tax rule. Read our reasonable comp guide before making that call. Underpaying yourself carries its own exposure, including back payroll tax, interest, and penalties, and it is assessed on its own facts.

Does this change my employer profit-sharing contribution? No. This rule reaches only the catch-up piece of your own elective deferral. Employer profit-sharing sits outside it. Note that a separate SECURE 2.0 provision lets a plan offer Roth treatment for employer contributions if the plan document allows it and the contributions are fully vested, so “employer side is always pre-tax” is no longer accurate as a blanket statement. Whether your plan offers it is a plan-document question.

Does my spouse’s income affect whether I’m subject to this? No. It is an individual wage test, and your filing status and your spouse’s earnings never factor into it, even on a joint return. On the separate question of what happens when two different employers each sponsor a plan, see the caveat above: we read the test as applying employer by employer, but that specific combination is our reading rather than confirmed guidance.

---

If you’re an S-corp owner within a few years of 50, this is now one more number your annual reasonable comp decision touches. The Discovery call is where we walk through your wage number, your retirement contribution goals, and how the two now interact under this rule, before you’re locked into a W-2 figure for the year.