Employers and employees should be prepared.

The IRS just finalized new rules under the SECURE 2.0 Act, and they’re going to matter for both employers and employees when it comes to retirement savings. The point of announcing it now, is to make sure businesses have time to prepare before the changes kick in.

Starting in 2027, catch-up contributions will be made as Roth contributions. 

Those aged 50 or older who earn more than $145,000 with their current employer, and make catch-up contributions to a 401(k), 403(b), or 457(b) plan will be required to make those contributions as Roth (after-tax) rather than pre-tax.

That’s a big shift for anyone who’s used to getting the upfront tax break.

• In 2025, the regular employee contribution limit rises to $23,500, and workers 50+ can add another $7,500 on top.
• Those aged 60–63 will also have access to new “super catch-up” contributions.
• Employers don’t have to flip the switch overnight—plans can start following the rules in 2026 on a “reasonable, good faith” basis.

The IRS also gave plan administrators more flexibility around things like fixing excess contributions and stopping automatic Roth elections if someone’s pay or tax forms change.

So a little background on why this is happening…

This comes from the SECURE 2.0 Act of 2022 which aimed to expand savings opportunities and boost tax revenue.  Basically, lawmakers wanted to both expand retirement savings options and offset the tax cost by collecting more revenue sooner.

Employers need to get ready now. This means significant updates to internal systems.

Even though the new Roth requirement doesn’t start until 2027, it’s a complicated update. Payroll systems, plan documents, and employee communications all need to work with the new rules. And employers should plan to educate employees why their paycheck looks different when they make catch-up contributions and how their taxes are affected.

As fiduciaries, our focus is always twofold:

• Helping employers stay compliant and avoid penalties.
• And making sure employees understand how any regulatory changes impact their retirement savings.

Get moving on the update now, it will mean a smoother transition will be for everyone.

Read the full story here.