How Wages Determine Roth Catch-Up Contributions

What Multi-Entity Employers Need to Know

The SECURE 2.0 Act introduced a major shift for high earners: beginning in 2026 (extended from 2024), employees who earn more than $145,000 in FICA wages from a single employer will be required to make catch-up contributions to a Roth account, if they want to make them at all.

For businesses with multiple entities, related companies, or complex pay structures, this raises critical questions.

First: What Qualifies as Wages for Roth Catch-Up Eligibility?

Catch-up contribution rules apply to participants age 50 or older. Under SECURE 2.0, if those participants earned more than $145,000 in wages subject to FICA taxes from the same employer in the prior year, any catch-up contributions must be made as Roth contributions (i.e., post-tax).

Key Point: The $145,000 threshold is entity-specific, not plan-wide. It’s based on W-2 wages reported under a single EIN, not aggregated across a controlled group unless the entities are treated as one under IRS controlled group rules.

Why This Matters in Multi-Entity Structures

Let’s say an employee earns:

$90,000 from Entity A (EIN 1)
$70,000 from Entity B (EIN 2)

Even if both entities participate in the same 401(k) plan, each EIN is viewed separately for Roth catch-up eligibility unless there’s a controlled group election or common paymaster arrangement in place.

If neither structure exists, neither wage stream crosses the $145,000 threshold individually, so Roth catch-up rules wouldn’t apply, yet the participant might still contribute under pre-tax rules, depending on plan design.

However, if both entities are part of a controlled group and the IRS considers wages across the group, the participant may be forced into Roth catch-up status depending on how payroll is handled.

What Plan Sponsors Need to Do Now

Audit Your Payroll and Plan Participation Data
Understand who’s earning what, and under which EIN. Pay close attention to employees who split time or income between subsidiaries.
Clarify Controlled Group and Affiliated Service Group Status
Controlled group rules (IRC §414(b), (c)) may require aggregation of wages across entities, which can trigger Roth-only catch-up requirements. Don’t assume entities are isolated just because they operate under separate EINs.
Align Plan Documents with Payroll Systems
Many payroll systems are not yet equipped to restrict pre-tax catch-up contributions based on the new Roth mandate. Plan sponsors and TPAs need to ensure proper guardrails are in place before 2026.
Educate Participants and Advisors
This isn’t just a plan admin issue. Wealth advisors and participants need to understand how their wage structure influences contribution eligibility and tax treatment.

The Asteri Collective’s Role

Our consultants specialize in plan design across complex ownership structures, including controlled and affiliated service groups. We work with business owners, CPAs, and advisors to ensure retirement plans are designed and administered to meet these new thresholds accurately and efficiently.

We help:

Determine controlled group status
Evaluate wage structures and payroll coordination
Update plan design for Roth-only catch-up rules
Train payroll and HR teams on compliance readiness

Final Takeaway

The SECURE 2.0 Roth catch-up requirement isn’t just a policy shift, it’s a compliance and payroll synchronization challenge that will trip up employers with layered organizational structures if left unaddressed.

At The Asteri Collective, we help you untangle that complexity. So your plan works, not just in theory, but in practice.

How Wages Determine Roth Catch-Up Contributions