The Roth Catch-Up Mandate Is a Payroll Data Problem First
Starting in 2026, SECURE 2.0's Section 603 requires that catch-up contributions from higher-earning employees be made on a Roth (after-tax) basis instead of pre-tax. The tax rule is simple. The data problem behind it isn't.
What's Required
Employees age +50 who earned more than $150,000 in FICA wages the prior year can no longer defer catch-up contributions pre-tax. Every dollar has to go in after-tax. The IRS finalized regulations in September 2025, and good-faith compliance is expected now, live, in every payroll cycle even before the hard deadline for compliance of Dec 31, 2026.
Why It's Hard
This isn't a tax question, it's a data-plumbing question:
Prior-year wages, not current pay. Determining who's subject to the rule requires looking backward, not at this period's paycheck.
A clean signal is needed, not raw wages. Industry practice has settled on a simple Roth-CUP (yes/no) flag passed from payroll to recordkeeper — protecting sensitive wage data while still triggering the right treatment.
Real-time conversion at the limit. Once a participant hits the 402(g) deferral cap, catch-up contributions need to auto-convert to Roth — every pay period, not at year-end.
A clean reset each January. Elections need to revert annually so no one gets stuck in last year's settings.
Multiply that across dozens of payroll providers, each with its own file format and update schedule, and you can see why this one provision has become an industry-wide operational headache.
Where Plans Get Tripped Up
1. Legacy payroll systems that can't easily export prior-year wage detail.
2. Mismatched file formats between payroll and recordkeeper systems, causing wrong tax treatment.
3. There may be no single source of truth when a sponsor runs multiple payroll systems or switched providers mid-year.
The Fix Is Architectural
Plans handling this well aren't the ones with the most compliance staff — they're the ones with a data layer that ingests whatever format payroll data is in, normalizes it, and applies the Roth-CUP logic automatically before a file ever reaches a recordkeeper.
The Takeaway
Roth catch-up is a preview of where the industry is headed: more rules that hinge on clean, correctly-tagged payroll data arriving on time. Fix the underlying plumbing once, and the next regulatory change gets easier — not harder. The Todays Pension platform is specifically built to help with data issues such as these that arise as data formats, laws, and compliance calculations change with the times.
Questions about how Todays Pension can help your organization handle your payroll and retirement data? Reach out at sales@todayspension.com or (720) 799-1000.