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In Practice October 1, 2025
Advisers ‘Playing ‘Quarterback’ as IRS Changes Roth Rules
Defined contribution plan advisers and sponsors need effective teamwork as the Roth compliance deadline grows closer.
Reported by James Van Bramer
When Sean Kelly sits down with clients to discuss how to transition to new Roth catch-up rules from the IRS, he often finds himself talking less about investments and more about payroll files.
“It’s about playing quarterback,” says Kelly, senior vice president and financial adviser at Heffernan Financial Services. “[We’re] really making sure that all the sides are crystal clear on what each party needs to do to make sure that this is set up appropriately.”
As the Internal Revenue Service’s final regulations on Roth catch-up contributions take effect in 2026, advisers are the crucial link between payroll providers, recordkeepers and plan sponsors. Their role is to facilitate the seamless transition of higher earners’ catch-up contributions to Roth accounts, all while preventing errors that could potentially expose sponsors to risk and leave participants in confusion.
The regulations finalize a central provision of the SECURE 2.0 Act of 2022: Beginning January 1, 2026, employees age 50 and older who earned more than $145,000 in the prior year (indexed to inflation) must make all catch-up contributions on a Roth (after-tax) basis.
The rules clarify that the threshold is tied to Form W-2, Box 3 wages, and lay out mechanics for “deemed Roth catch-up elections,” which require payroll systems to reclassify contributions automatically when thresholds are reached. Sponsors must also navigate related provisions, including a temporary “super catch-up” for employees ages 60 through 63.
Countdown to Compliance
Regulators have promised good-faith flexibility through 2026 before full enforcement begins in 2027. That timing may offer some breathing room, but industry experts warn that the operational hurdles are real.
“The key issue is the identification process,” says Tim Rouse, executive director of the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute. “Payroll providers are the ones that know how much income you’ve earned; the recordkeepers don’t.”
Rouse says payroll readiness varies widely. Some firms are prepared, others are scrambling, and some have signaled the rule is not yet a priority. To get ahead of that variability, SPARK has circulated a checklist that advisers can use to pressure-test payroll vendors, including:
- Can they identify employees crossing the threshold at the start of the year?
- Will systems automatically switch contributions to Roth once the 402(g) threshold is hit?
- Do deferrals revert properly each January?
- Do providers support standard data formats for recordkeepers?
When the answers are “no,” Rouse says, advisers should convene joint calls with recordkeepers to design workarounds before the deadline.
Changing Payrolls, Paychecks
The IRS originally slated the rule to take effect in 2024 but pushed the date back, citing the need for payroll providers and plan sponsors to adapt systems that were not designed to track the right kinds of income.
“Most payroll companies weren’t actually tracking [the relevant income],” says Todd Feder, vice president and senior retirement plan consultant at Girard, a Univest Wealth division. “So it was about making sure to set the payroll systems up and create the operational awareness at the plan sponsor level of what income they should be tracking.”
Feder notes that most recordkeepers and third-party administrators have already built out the necessary scaffolding. What remains, he says, is the true test work of ensuring payroll managers and sponsors track wages accurately and reclassify contributions correctly in 2026.
Lisa Tavares, a partner in Venable LLP who advises on ERISA and tax issues, emphasizes the importance of payroll mechanics.
“The payroll system has to be set up correctly … [when] the right trigger goes off, so we’re not creating operational errors,” Tavares says. She also cautions that even with the IRS’s good-faith posture, sponsors should not treat 2026 as a test run. “Good-faith compliance means you tried to be in compliance the best you could as you went into the year. I don’t think the government intends you to kind of figure it out [in] 2026.”
The final regulations also include a de minimis rule allowing sponsors to disregard errors worth less than $250, as well as correction paths using either a corrected W-2 or a Form 1099-R. Still, Tavares notes, the time window in which to fix excess contributions is short, and resource constraints—especially for smaller employers—may make timely corrections difficult.
For participants, the most noticeable change will come in their paychecks. Employees accustomed to reducing their taxable income with pre-tax catch-ups may be surprised to see less take-home pay when those contributions shift to Roth.
“Even though people have been notified, when they see it happening, that might be something that’s a surprise to them,” Kelly says.
His firm has prepared template letters for sponsors to send to affected employees, explaining how Roth works and encouraging them to begin Roth contributions early to start the five-year clock for tax-free withdrawals.
Despite the shock factor, advisers say pushback has been limited.
“I haven’t heard people say, ‘Well, we’re not going to do a catch-up contribution simply because it has to go Roth,’” Feder says.
Cementing Roth
If the Roth catch-up mandate was partly a revenue-raiser for Congress, it is also accelerating a trend, advisers say. Many higher earners already make Roth contributions or use Roth strategies like backdoor conversions and estate planning tactics.
“Most plans today just include Roth,” Feder says. “Maybe a straggler here or there will be adding Roth, but it’s become such a staple of the retirement plan, it was almost already there.”
Kelly agrees: “Roth has picked up a lot of steam in the last few years,” he says. “It’s very popular across all demographics, all companies, nonprofits—it’s become very popular.”
According to Fidelity, more than 94% of the retirement plans for which Fidelity provides administrative services offer a Roth 401(k) option.
Similarly, at the end of 2023, Vanguard reported that 82% of its administered plans included Roth options, reflecting a two-percentage-point increase from the previous year and consistent growth since 2019. Meanwhile, the percentage of participants utilizing Roth accounts remained steady at 17%, unchanged from the previous year, but up five percentage points since 2019.
That popularity underscores why advisers are leaning into Roth education now, framing the feature as part of a diversified retirement portfolio that can give retirees flexibility in managing tax brackets, Medicare premiums and Social Security taxation, Kelly says.
Complaints from older workers who want to make catch-up contributions will also likely encourage the few holdouts to offer Roth, Kelly says.
“If a plan gets to the point where there is no Roth set up, most recordkeepers are creating an amendment to add it regardless,” Kelly says.
As 2026 approaches, the consensus among experts is clear: Sponsors should not wait. In fact, several say the process should have begun prior to the final rules.
“Where the rubber is going to meet the road is at the plan sponsor level and the payroll provider level,” Feder says. “We’re going to see if it all works.”
