Preparing Your Plan for the 2026 Roth Catch-Up Rule

Beginning January 1, 2026, employees aged 50 or older who earned more than $150,000 in the prior calendar year (as reported in Box 3 of their W-2) must make their catch-up contributions as Roth (after-tax) contributions.

Who This Applies To

This rule applies to employers who:

• Offer catch-up contributions in their plan, and
• Issue W-2 wages to employees.

It affects employees who meet all of the following criteria:

• Are age 50 or older,
• Earned more than $150,000 in Box 3 wages from your company in the previous year (indexed annually), and
• Contribute more than the annual 402(g) deferral limit ($24,500 for 2026, indexed for cost-of-living adjustments).

These employees are considered Highly Paid Individuals (HPIs) or Highly Paid Participants (HPPs) under the SECURE Act 2.0.

Ubiquity uses the term Highly Paid Individual (HPI) to align with our plan document provider.

Self-Employed Individuals and the Roth Catch-Up Rule

If you are a self-employed individual who reports income on a Schedule C (sole proprietor) or a Schedule K-1 (partnership), you are not considered a Highly Paid Individual (HPI) for purposes of the 2026 Roth catch-up rule.

Because self-employed individuals do not receive W-2 wages and therefore do not have Social Security (Box 3) compensation, the Roth catch-up requirement does not apply to them, even if they earn more than $150,000.

This means that in some cases, an employer who sponsors the plan may earn above the HPI threshold amount but still not be classified as an HPI, while their W-2 employees could be.

While this rule does not apply to you as a self-employed owner, we recommend adding a Roth contribution option to your plan if it is not already available.

• This gives flexibility to any employees who may qualify as HPIs under the new rule.
• The IRS has confirmed that a plan will not lose its qualified status or fail benefits testing if it does not offer Roth contributions.
• However, if your plan includes HPIs and does not permit Roth contributions, those employees identified as HPIs cannot contribute above the 402(g) limit, since any catch-up contributions must be Roth beginning in 2026.

Adding Roth capability ensures that your plan, and any HPI employees remain compliant and able to maximize their contributions.

How Ubiquity Is Handling Roth Catch-Up Contributions

Ubiquity is working to ensure that all systems and processes are aligned with the 2026 Roth catch-up requirements.

• Client and Payroll Coordination:
  You will need to work with your payroll provider to identify employees who qualify as HPIs and confirm that payroll systems can properly designate and transmit Roth catch-up contributions for those individuals.

• Ubiquity Support for Plan Sponsors:
  Ubiquity will assist you with processing any Roth recharacterizations that result from:

  • ADP/ACP testing adjustments, where employee deferrals are recharacterized as catch-up contributions, or
  • Misidentification of HPI employees or failure to submit catch-up contributions as Roth, requiring correction.

• Roth Plan Design:
  Ubiquity will add a Roth contribution source to any record-kept plan, free of charge. 

Sponsor Responsibility: Identifying and Notifying HPIs

As the plan sponsor, you are responsible for identifying and notifying employees who meet the HPI/HPP criteria each year.

1. Determine who qualifies as an HPI
   • Review each employee’s prior year Form W-2, Box 3 compensation.
   • If they earned more than $150,000 and are age 50 or older, they are considered an HPI/HPP.
2. Notify affected employees
   • Inform them that they are classified as HPIs/HPPs and that their catch-up contributions must be Roth beginning in 2026.

Direct them to the Ubiquity Help Center for details on Roth catch-up requirements.

Monitoring Contributions Beyond the 402(g) Limit

Once an employee reaches the 402(g) contribution limit ($24,500 for 2026, indexed for future years), any contributions above that limit are automatically treated as catch-up contributions.

For HPIs/HPPs, those contributions must be Roth unless the employee has already contributed an equivalent Roth amount earlier in the year.

Examples:

The IRS rule does not require that Roth contributions be specifically labeled as “catch-up.”
It only requires that an amount equal to the total contributions made above the 402(g) limit be Roth contributions.

Testing-Year Recharacterizations (for Non–Safe Harbor Plans)

If your plan is subject to ADP/ACP testing, employees who are both HPIs and HCEs may be affected by recharacterizations during annual testing even if they did not defer above the 402(g) limit during the plan year.

Here’s how that works:

• During testing, some employees’ regular deferrals may be recharacterized as catch-up contributions to help the plan pass nondiscrimination testing.
• If those employees are also HPIs and haven’t already contributed enough Roth dollars to satisfy the catch-up amount, their recharacterized deferrals must be converted to Roth in the recordkeeping system.

Ubiquity will:

• Identify when this occurs based on testing data,
• Coordinate with the plan sponsor to process the Roth recharacterization

Roth Catch-up in Safe Harbor vs. Tested Plans

If your plan includes a Safe Harbor employer contribution (non-elective or match), it is not subject to ADP/ACP testing.

• HPIs in Safe Harbor plans can contribute normally, and recharacterization of contributions is not required.

• Only plans that are not Safe Harbor (i.e., those that undergo annual ADP/ACP testing) are affected by the testing exceptions described above.

Understanding the Difference Between HPIs and HCEs

It’s important to understand the difference between Highly Paid Individuals (HPIs) and Highly Compensated Employees (HCEs)

An employee can be both an HPI and an HCE, depending on their income and ownership status.

Preemptive Strategy to Avoid Recharacterization

While employees cannot be required to contribute in a specific way, you can educate your HPIs on a proactive contribution approach.

• Suggest that HPIs who intend to contribute the full 402(g) limit or more begin the year by making their first $8,000/$11,250 (or the indexed catch-up/super catch-up limit) as Roth contributions.
• If your plan is subject to testing: Suggest that HPIs who are also HCEs begin the year by making their first $8,000 (or the indexed catch-up limit) as Roth contributions, even if they do not intend to contribute the full 402(g) limit or more. This is particularly beneficial if deferrals have been recharacterized to pass testing in prior years. 
  • You can review prior year testing by logging in to your employer portal and,
    • Select 401(k) Plan in the left navigation menu
    • Select Documents
    • Scroll to the Compliance section and review the prior year testing results Summary of Catch-up Contributions page
• This ensures that if HPIs exceed the 402(g) limit or if deferrals are recharacterized as catch-up during testing, they automatically meet the Roth requirement for any catch-up contributions.
• This strategy also protects against payroll or administrative oversight. If contributions were already Roth, no recharacterization is required.

Summary of Plan Sponsor Responsibilities