Your 401(k) Quietly Locked Out Your Highest Earners

A $12M engineering firm I work with found out in July that three people had spent the year contributing to the 401(k) in a way the plan can no longer accept. Their operations lead, their head of sales, and one of the two founders. Roughly $27,000 of catch-up contributions to unwind.

Nobody did anything wrong. Plan was set up in 2019 and doesn't offer Roth deferrals, which was a non-issue for six years. On January 1 it became the reason their three best-paid employees lost a benefit.

The test runs off a box on last year's W-2

SECURE 2.0 requires catch-up contributions to be Roth for any participant whose prior-year FICA wages from the plan-sponsoring employer cleared a threshold. For 2026 that means more than $150,000 of 2025 wages, measured in Box 3 of the W-2. Final regulations landed September 16 of last year. Good-faith compliance covers 2026, the regulations formally apply in 2027, and plan amendments are due December 31, 2026.

Read the mechanics closely, because the determination is per-employee and backward-looking.

It's the employer sponsoring the plan, not your corporate group. Multi-entity setups where staff are paid from a management company and the plan sits in the operating entity don't behave the way you'd assume, absent aggregation language in the plan document.

Someone with no prior-year FICA wages from you isn't subject at all. A January hire and a partner drawing only self-employment income both sit outside the rule this year.

The part that isn't about taxes

This is the failure that catches people. If a plan has no Roth feature, the rule doesn't convert a high earner's catch-up to Roth. It removes their eligibility. They can't make a catch-up contribution at all.

For 2026 that's $8,000 of tax-advantaged saving for someone 50 or older, and $11,250 for someone between 60 and 63. Gone for exactly the people who notice: your senior operators, your early hires, usually a founder.

This reads like a benefits item and behaves like a payroll data problem. The trigger is a number from last year's W-2, and payroll is the only system holding it.

Four months, not fourteen

Ask your recordkeeper one question this week. Does the plan document permit Roth deferrals? If it doesn't, amending it is the entire fix, and the deadline is December 31.

Then have payroll produce a list of everyone turning 50 or older during 2026 whose 2025 Box 3 wages exceeded $150,000. At your size that list is short. It's also the list nobody currently owns, which is how this went undetected for seven months at the firm above.

Last, check whether anyone affected has already made pre-tax catch-up contributions this year. Fixing that in August is a payroll adjustment. Fixing it in February is a corrected W-2 and a conversation about plan qualification.

Your plan document describes the company you were in 2019. Your payroll file is the only thing that knows who you are now.