Beginning January 1, 2026, certain employees aged 50 or older who make catch-up contributions to their 401(k) plan will be required to make those contributions as Roth (after-tax) instead of pre-tax.

Who This Applies To

This change applies to you if:

  • You are age 50 or older, and
  • You earned more than $150,000 in wages from your employer in the previous calendar year (as reported in Box 3 on your W-2).

If you meet these requirements you are designated as a Highly Paid Individual or HPI. 

If you earned $150,000 or less, your catch-up contributions can continue to be made on a pre-tax or Roth basis, depending on what your plan allows.

What You Need To Do

If you are an HPI in 2026 :

  • If you have only made pre-tax contributions, and you make catch-up contributions, your employer or payroll provider should automatically deduct them as Roth regardless of your election.
  • Once you reach the annual contribution limit (402(g) limit) any additional contributions will be catch-up contributions deducted as Roth (after-tax) instead of pre-tax.
  • If you are allowed to make pre-tax catch-up contributions the contributions will need to be re-characterized as Roth. 
  • No action is required from you unless your plan administrator or employer asks you to confirm your elections.
  • If you do not want to make Roth contributions you can cap your contributions at the 402(g) limit. 

Understanding the Exception for Tested Plans

Generally, if you are an HPI and do not contribute over the 402(g) limit for the plan year this requirement does not impact you. However, there is an exception for plans that must perform ADP and ACP testing each year.

If your plan is tested and you are considered both a Highly Paid Individual (HPI) and a Highly Compensated Employee (HCE) in that testing year, the plan may need to re-characterize a portion of your regular deferrals as catch-up contributions to help the plan pass nondiscrimination testing.

Here’s how it works:

  • Catch-up contributions are excluded from ADP testing.
  • If re-characterizing a portion of your deferrals as catch-up helps your plan pass, this is done automatically during testing.
  • If you are also an HPI, any pre-tax deferrals that are re-characterized as catch-up must then be re-characterized as Roth in the recordkeeping system.
  • These adjustments would apply when the 2026 plan year is tested (in early 2027).

Ubiquity will identify when this occurs based on information provided by your employer (the plan sponsor) and will work directly with them to ensure that your deferrals are properly updated and to notify you if your deferrals are affected.

Highly Compensated Employee (HCE)

An HCE is defined by the IRS as an employee who meets either of the following criteria:

  • Ownership Test: You own more than 5% of the company during the current or prior plan year, regardless of your compensation amount.
  • Compensation Test: You earned above the IRS compensation threshold in the prior year.
    • For 2025/2026, that amount is $160,000 (indexed annually for cost-of-living adjustments).

If you meet either of these conditions, you are considered a Highly Compensated Employee for testing purposes.

Highly Paid Individual (HPI)

The term Highly Paid Individual (HPI) refers to employees who earned more than $150,000 in W-2 wages (Box 3) in the prior year and are age 50 or older.

  • The HPI designation is new terminology introduced under the SECURE Act 2.0 to align with the Roth catch-up contribution rule .
  • You may also see this designation referred to as Highly Paid Participants or HPPs. Ubiquity uses the term HPI because it appears in the plan document language provided by our document provider.

If you are in a Safe Harbor plan and only plan to contribute up to the 402(g) limit, you don’t need to worry about this exception. It only applies if you contribute above that limit or if your plan is subject to ADP testing and you are classified as an HPI and an HCE.

How to Tell If Your Plan Is Safe Harbor or Tested

You can review your plan’s provisions for Safe Harbor by logging into your account:

  1. From the left navigation menu:
    • Go to 401(k)>Documents + Forms 
      • Download your Summary Plan Description (SPD) or Plan Highlights. Review the Contributions section to see if your plan has a safe harbor source.
      • Under Plan Notices look for a safe harbor notice for the plan year.
    • Go to Overview > Plan Provisions> Contributions
      • Look for an employer contribution type listed as Safe Harbor.
  2. If you see that your plan is Safe Harbor, the testing exception does not apply to you, and you can contribute up to the 402(g) limit without concern about re-characterization.
  3. If your plan is not safe harbor but you are not an HCE for the year in question, the testing exception does not apply to you. You can contribute up to the 402(g) limit without concern about re-characterization.
  4. If your plan is not safe harbor and you are an HCE and an HPI continue reading.

Preemptive Roth Strategy to Avoid Re-characterization

If you’d like to stay ahead of potential adjustments during testing season, you can take a proactive approach:

  • For individuals age 50-59 or age 64 and older, consider making your first $8,000 (or the indexed catch-up for the year) as Roth.
  • For individuals age 60-63, consider making your first $11,250 (or the indexed super catch-up for the year) as Roth.
  • Once you reach that catch-up or super catch-up amount, you can switch back to pre-tax contributions for the rest of the year.

This helps ensure that if any portion of your contributions is later re-characterized as catch-up for testing purposes, they’ll already be Roth and won’t require further adjustments.

If you’re unsure whether you are an HPI/HCE or if your plan is tested, contact your employer or plan administrator for guidance.

Need Help?

If you have questions, email us at info@myubiquity.com or chat with us 24/7 by clicking the chat icon after logging into your account.