Roth Catch-Up Contribution Rules for Solo 401k High Earners

Starting in 2026, many Solo 401k owners aged 50 and older will face new rules on how they handle “catch-up” contributions. Under the SECURE 2.0 Act, those with prior-year wages above a certain threshold must designate catch-up deferrals as Roth. This means they’ll be made with after-tax dollars, without reducing current-year taxable income.

The IRS has now finalized how this Roth-only catch-up rule will apply and clarified key definitions, including what qualifies as “compensation” and who is considered a “high earner.” With a one-year transition period in place for 2025, now is the time to understand how these changes affect self-employed individuals, S-Corp owners, and anyone making extra deferrals at age 50 or older.

This guide breaks down the new Roth mandate, explains how Solo 401k plans must adapt, and outlines steps to prepare while there’s still time to adjust income, update documents, and plan for the larger age 60–63 limits coming soon. 

📌 Also read: 10 Biggest Solo 401k Benefits & Tax Advantages

What the Roth-Only Catch-Up Rule Requires (2025 to 2026)

Section 603 of the SECURE 2.0 Act introduced a new requirement for higher-income participants age 50 or older: if they want to make catch-up contributions to a retirement plan, those contributions must be Roth, meaning taxed upfront. This requirement was added to the Internal Revenue Code as Section 414(v)(7).

On September 16, 2025, the IRS and Treasury finalized the implementing regulations. These regulations confirm that the Roth-only requirement will apply beginning January 1, 2026, and all plans must comply by that date. To ease the transition, the IRS is allowing a temporary grace period through the end of 2025. This gives plan sponsors, including Solo 401k filers, time to update their systems, documents, and payroll processes without penalty.

This transition relief comes from IRS Notice 2023-62, which allows catch-ups to be treated as pre-tax during a two-year window. This applies to taxable years beginning after December 31, 2023, and before January 1, 2026. However, the final rule confirms there will be no extension of this transition beyond 2025.

📝 Note: After 2025, plans must fully enforce Roth-only treatment for eligible catch-up contributions, if the income test is met. This includes not just plan documents, but also payroll systems and participant elections.

Income Threshold and Age Requirements

The Roth-only mandate is based on two key tests: income and age. Both must be evaluated to determine whether Roth treatment is required for catch-up contributions.

A catch-up-eligible participant is subject to the Roth-only rule if:

✅ Their wages from the employer maintaining the plan exceeded $145,000 in the prior calendar year
✅ This amount is measured using §3121(a) wages (commonly known as FICA wages)
✅ The $145,000 threshold is indexed for inflation beginning in 2025

Participants must also meet age-based eligibility to make catch-up contributions:

📝 Note: If a participant meets the income test, all catch-up contributions (standard or enhanced) must be Roth. There is no option to elect pre-tax treatment if the rule applies.

Solo 401k vs. Large Plan Mechanics

Whether the Roth-only rule applies depends on the structure of the Solo 401k and the type of income received in the prior year. The IRS makes a clear distinction between FICA wages and self-employment income.

✅ S-Corp Owner-Employees

If you are an S-Corp owner who draws a W-2 salary from the corporation sponsoring the Solo 401k, your catch-up contributions will be subject to the Roth-only rule if your prior-year wages exceeded the threshold. The employer in this case is the S-Corp itself.

✅ Sole Proprietors and Partners

If you report income as net earnings from self-employment under §401(c), you are not considered to have §3121(a) wages. According to IRS guidance, the Roth-only mandate does not apply in this case. Therefore, many true “solo” filers operating without W-2 wages can continue making pre-tax catch-ups, even after 2025.

📝 Note: This creates a structural difference: the Roth-only rule may apply to S-Corp owners but not to sole proprietors, even if both are using Solo 401k plans.

Until the end of 2025, Solo 401k plans may continue operating under existing procedures. However, beginning in 2026, full compliance is required. Plans must be updated to reflect the Roth-only mandate, and participant-level wage testing must be built into annual operations.

Who Counts as a “High Earner” Inside a Solo 401k

The Roth-only catch-up rule applies only to participants who meet a specific income test based on wages received in the prior calendar year. This test does not look at total income or self-employment earnings. Instead, it focuses on a defined type of compensation (FICA wages) from the employer that sponsors the plan.

Under Section 414(v)(7) of the Internal Revenue Code and related IRS guidance, a participant is considered a “high earner” if they had prior-year wages exceeding $145,000 from the employer maintaining the plan, as measured under §3121(a). These are the same wages used to determine the Social Security wage base and are typically reported on Form W-2.

If a participant did not receive W-2 wages (e.g., a sole proprietor reporting only self-employment income), the Roth-only rule does not apply.

📝 Note: For Roth-only catch-up purposes, the income test is applied plan by plan. Wages from unrelated employers are not combined, even if a participant is in multiple 401k plans.

Self-Employed Individuals (Sole Proprietors or Partners)

If you operate as a sole proprietor or partner, your Solo 401k contributions are based on net earnings from self-employment. This type of income is not classified as §3121(a) wages, so it is excluded from the Roth-only threshold test. As a result, you can typically continue making pre-tax catch-up contributions to your Solo 401k, even after 2025.

This distinction is confirmed in IRS guidance and remains a key difference between solo businesses with and without W-2 wages.

S-Corp Owner-Employees

If you are an S-Corp owner who draws a W-2 salary from your corporation, the IRS uses those W-2 wages to determine whether Roth-only treatment applies. If your prior-year wages from the S-Corp that sponsors the Solo 401k exceed the indexed threshold, then all catch-up contributions to that Solo 401k must be Roth starting in 2026.

This applies to both the standard age 50+ catch-up and the enhanced age 60–63 tier.

Business Owners with Multiple Employers or Plans

The Roth-only catch-up rule applies separately to each 401k plan. The IRS does not allow aggregation of wages across employers, even if you own multiple businesses or are part of a controlled group.

✅ Your day-job W-2 wages are used to test your eligibility for Roth-only catch-ups in your day-job 401k
✅ Your S-Corp W-2 wages (if applicable) are used to test your Solo 401k
❌ These wage amounts are not combined for Roth-only purposes

📝 Note: The same rule applies to multiemployer or multiple-employer plans. Wages from one employer do not impact Roth treatment for another.

Common Edge Cases for Solo 401k Plans

Plan sponsors and business owners should be aware of a few administrative scenarios that can complicate this test:

❌ Corrected W-2s or late payroll: If payroll is adjusted after year-end, it could change whether the threshold was met.

❌ Back-pay or deferred compensation taxed under §3121(v)(2): These amounts do not count toward the income test for the current year.

✅ Universal availability: If any participant in the plan is subject to Roth-only treatment, the Solo 401k must allow Roth catch-ups for all eligible participants, per IRS rules.

📝 Note: The IRS has been clear that the $145,000 wage test is not based on combined income, total compensation, or tax return data. It is narrowly tied to FICA wages paid in the prior year by the plan-sponsoring employer.

Planning and Compliance Steps for 2025 Contributions

The IRS has confirmed that the Roth-only catch-up rule will take effect beginning January 1, 2026. For Solo 401k plans, the 2025 transition year is a critical window to make necessary updates (both operationally and administratively) before Roth-only enforcement begins.

While IRS Notice 2023-62 offers temporary relief through the end of 2025, the final regulations require plan sponsors to begin aligning with the new rules by early 2026. For self-employed individuals and owner-employees using a Solo 401k, this means checking documents, updating elections, configuring payroll, and understanding the tax impact in advance.

📝 Note: The IRS will permit a “reasonable, good-faith” compliance standard for 2026, but full enforcement begins in 2027. Use 2025 to prepare.

Checklist for Solo 401k Sponsors in 2025

✅ Verify Roth Catch-Up Availability

Confirm whether your Solo 401k allows designated Roth contributions. If it does not, work with your plan document provider to add a Roth feature. If no Roth option is added, catch-up contributions may not be allowed in 2026 or beyond.

✅ Update Deferral Election Language

Ensure your election forms and documents clearly state that catch-up contributions, both for age 50+ and age 60–63, will be Roth-only for high earners beginning in 2026. Explain the tax trade-offs in employee-facing materials.

✅ Configure Auto-Roth Reclassification

The final IRS rules allow plans to automatically treat catch-up amounts as Roth once a participant qualifies. Set this up with your recordkeeper or payroll system to trigger when the regular deferral limit is exceeded or a contribution is labeled as catch-up.

✅ Code Payroll to Identify High Earners

Set up payroll systems to flag participants who:

✅ Document 2026 Good-Faith Procedures

The IRS permits reliance on a good-faith interpretation of the Roth-only rule during 2026. Keep written procedures and vendor confirmations to show that your Solo 401k plan made a reasonable effort to comply during the transition.

✅ Reconcile 2025 Contributions

Use 2025 to check whether current-year catch-up contributions were correctly coded, processed, and reflected on year-end statements. These records will help ease the switch to Roth-only treatment in 2026.

✅ Cross-Check Enhanced Catch-Up Support

If your plan will permit the 2025 age 60–63 “super” catch-up, confirm that the system supports the $11,250 limit and applies correct age gating. Verify how these limits will interact with Roth-only rules next year.

✅ Educate the Participant (You)

Provide a short explanation of what Roth catch-ups mean: no current-year deduction, but future qualified distributions are generally tax-free. Under SECURE 2.0, Roth balances are also exempt from lifetime required minimum distributions (RMDs).

Payroll and Record-Keeping Adjustments

The IRS allows Solo 401k sponsors to automatically reclassify catch-up contributions as Roth if a participant meets the wage test. This avoids the need for a new election each year.

📝 Note: Plans can apply a “deemed Roth” approach that triggers when a participant exceeds the standard deferral limit or if payroll marks a contribution as a catch-up.

Here are the key data points to track in your payroll or plan software:

(1) Prior-year §3121(a) wages from the Solo 401k’s sponsoring employer

(2) Participant’s date of birth to identify age-50 and age 60–63 eligibility

(3) Income threshold flags to block pre-tax catch-ups where Roth is required

(4) Audit logs to track any corrections or recharacterizations

Be sure your provider supports these fields and can apply the correct logic by January 2026.

In case of errors, such as catch-ups incorrectly processed as pre-tax, check that your recordkeeper offers a formal correction process. Also, consider issuing a year-end notice to clarify what changed and how your Solo 401k will comply.

Tax and Cash-Flow Strategies Before the Switch

Because the Roth-only rule will not apply until 2026, Solo 401k participants who qualify for catch-up contributions may still use pre-tax treatment for 2025. This creates a short-term planning opportunity.

✅ Consider a 2025 Pre-Tax “Fill-Up”

If you expect to exceed the income threshold in 2026, consider maximizing catch-up contributions in 2025 while pre-tax treatment is still allowed. This applies to both standard and enhanced limits, if your plan permits them.

✅ Model 2026 Tax Impact Now

Roth-only catch-ups will increase your current-year taxable income in 2026. Update your Form 1040-ES or payroll withholding to reflect the expected increase. Use IRS Publication 505 to estimate whether additional payments may be required.

✅ Balance Long-Term Benefits

Designated Roth accounts can offer long-term tax advantages, including tax-free qualified withdrawals and exemption from RMDs. Use this time to weigh whether Roth-only catch-ups align with your retirement and tax planning goals.

Wrapping It Up

Solo 401k owners have one year left to prepare before the Roth-only catch-up rule takes effect. The 2025 transition period gives time to evaluate prior-year wages, confirm whether the threshold applies, and align documents and systems.

If you qualify for catch-ups this year, consider whether maximizing pre-tax contributions still fits your tax goals. Modeling 2026 cash flow in advance may help avoid surprises when Roth treatment becomes mandatory.

Check if your Solo 401k supports the enhanced age 60 to 63 limit and ensure it operates separately from the standard age 50 catch-up.

If you have both a Solo 401k and a day-job 401k, review each plan under its own employer’s wage test. Wages are not combined.

Finally, keep written records of any 2025 updates. Good documentation can support a smooth shift to Roth-only compliance in 2026.

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