For most New Mexico businesses that sponsor a 401(k) or 403(b) plan, 2026 is the year SECURE 2.0’s most operationally disruptive rule finally bit: participants aged 50 or older who earned more than $150,000 in FICA wages from the sponsoring employer in 2025 can no longer make pre-tax catch-up contributions. Their catch-ups must go in as designated Roth contributions, taxed now. The rule has been running in payroll since January, but the paperwork deadline is still ahead. Plan documents must be formally amended to reflect the new regime by December 31, 2026, and the amendment is only the visible tip of a coordination exercise involving payroll, the recordkeeper, and participant communications that should not wait for December.
The population this hits in New Mexico is exactly the firm’s neighborhood: physicians’ groups and specialty practices in Albuquerque, oilfield services S corporations working the Permian out of Hobbs and Carlsbad, engineering and professional firms in Santa Fe and Las Cruces, and any closely held company whose owners pay themselves six-figure W-2 wages and lean on catch-up contributions to build retirement savings late in their careers.
What Does the Mandatory Roth Catch-Up Rule Actually Require?
Section 603 of the SECURE 2.0 Act added subsection (v)(7) to 26 U.S.C. § 414. In brief: if a participant’s wages, as defined for Social Security tax purposes, from the employer sponsoring the plan exceeded an indexed threshold in the preceding calendar year, any catch-up contribution the participant makes must be a designated Roth contribution. The statute nominally took effect in 2024, but the IRS granted a two-year administrative transition period in Notice 2023-62, treating 2024 and 2025 as compliance-free. Treasury then issued final regulations on September 15, 2025. The upshot is that for calendar-year plans, the mandate genuinely operates beginning January 1, 2026, with 2026 administration governed by a reasonable, good-faith reading of the statute while the final regulations phase in fully for later years.
Who Is Caught by the $150,000 Prior-Year Wage Test?
The threshold started at $145,000 and is indexed; per Notice 2025-67, the figure that governs 2026 is $150,000 of 2025 FICA wages. Three features of the test do the real analytical work. First, it looks only backward: a participant’s 2026 mandate depends entirely on 2025 wages, so payroll can identify the affected group on January 1 with certainty. Second, it counts only wages from the employer sponsoring the plan. An executive hired in mid-2026 who earned $300,000 elsewhere in 2025 has no prior-year wages from this employer and is not subject to the mandate for 2026. Third, it counts only FICA wages, which produces the rule’s most interesting carve-out.
Why Are Partners and Self-Employed Owners Off the Hook?
This is the detail an attorney-CPA cannot resist. Partners in a partnership, members of an LLC taxed as a partnership, and sole proprietors do not receive FICA wages from the business; they have self-employment earnings taxed under SECA instead. Because the statutory test runs on FICA wages, a law firm partner or physician-group partner with $600,000 of K-1 income has zero prior-year wages from the sponsoring employer and may keep making fully pre-tax catch-up contributions in 2026. Meanwhile the practice’s employed office manager earning $155,000 in W-2 wages is forced into Roth. The final regulations confirm this reading. For New Mexico professional groups weighing entity structure, this is one more asymmetry between the partnership form and the S corporation, whose owners do take W-2 wages that count toward the test, to weigh alongside reasonable-compensation and self-employment tax considerations.
What Do the 2026 Numbers Look Like for a Santa Fe Practice Owner?
Take a 55-year-old Santa Fe practice owner who paid herself $180,000 of W-2 wages from her S corporation in 2025. For 2026 the regular elective deferral limit is $24,500 and the age-50 catch-up limit is $8,000, both per Notice 2025-67. Her $180,000 of 2025 wages exceeds $150,000, so the $24,500 can still go in pre-tax, but the $8,000 catch-up must be Roth. At a 24 percent federal bracket plus New Mexico’s top individual rate of 5.9 percent, losing the deduction on $8,000 costs her roughly $2,392 in current tax. What she buys with that is tax-free growth and tax-free qualified withdrawals, plus a bucket of retirement money with no lifetime required minimum distributions. For an owner who expects comparable or higher rates in retirement, mandatory Roth is closer to forced good planning than a penalty; for one counting on much lower retirement brackets, it is a genuine cost. If she were 60 through 63, SECURE 2.0’s separate enhanced catch-up under section 109 would raise her catch-up limit to $11,250 for 2026, all of it Roth, roughly $3,364 of current tax at the same rates.
What Must Plans Without a Roth Feature Do Before Year-End?
The mandate creates a fork for the minority of plans that never added a Roth deferral option: add one, or accept that participants over the wage threshold can make no catch-up contributions at all. The regulations soften the administration in two useful ways. A plan may provide a deemed Roth election, under which a high-wage participant’s attempted pre-tax catch-up is automatically treated as an irrevocable Roth designation, so long as the participant has an effective opportunity to elect otherwise or opt out. And where errors occur, corrections can run through a Form W-2 correction or an in-plan Roth rollover, with a de minimis pass for small amounts. None of that works unless payroll and the recordkeeper are exchanging the right data: 2025 FICA wage figures by participant, catch-up flags in the deferral election system, and participant notices explaining why a longtime pre-tax saver is suddenly seeing Roth withholding. Sponsors should be validating that pipeline now, not in December, and confirming that what payroll has actually been doing since January matches what the amendment will say the plan does.
What Happens If a Plan Misses the December 31, 2026 Deadline?
Under Notice 2024-2’s consolidated SECURE 2.0 amendment schedule, most plans must adopt conforming amendments by December 31, 2026, with later deadlines for collectively bargained plans and governmental plans tied to bargaining cycles and legislative sessions. The amendment deadline is forgiving in one sense: a plan may operate the new rule all year and paper it in December, provided operation and the eventual amendment match. It is unforgiving in the other direction. A plan that lets a $150,000-plus participant make pre-tax catch-ups in 2026 has an operational failure, and an unamended document at year-end becomes a document failure; both put the plan’s tax qualification at risk, which is the nuclear scenario for every participant, not just the affected executives. The realistic path back is correction, through the W-2 and in-plan rollover methods in the regulations or the IRS’s Employee Plans Compliance Resolution System, and corrections get more expensive the longer errors run. This is the same year-end discipline the firm urged for a very different new regime in its post on Trump Accounts and the Rev. Proc. 2026-25 gift tax safe harbor: when Congress builds a new savings vehicle, the paperwork deadlines are where taxpayers actually get hurt.
| 2026 participant profile | Catch-up treatment |
|---|---|
| Age 52, 2025 W-2 FICA wages of $120,000 from the sponsor | May contribute the $8,000 catch-up pre-tax or Roth, participant’s choice |
| Age 55, 2025 W-2 FICA wages of $180,000 from the sponsor | $8,000 catch-up must be designated Roth |
| Age 61, 2025 W-2 FICA wages of $200,000 from the sponsor | Enhanced $11,250 catch-up, all designated Roth |
| Partner with K-1 self-employment income only, no W-2 | Not subject to the mandate; pre-tax catch-up still allowed |
| New hire in 2026 with no 2025 wages from this employer | Not subject to the mandate for 2026 |
| High earner in a plan with no Roth feature | No catch-up permitted unless the plan adds a Roth option |
Frequently Asked Questions
Does the mandatory Roth catch-up rule apply to SIMPLE IRA plans?
No. The mandate applies to 401(k), 403(b), and governmental 457(b) plans; SIMPLE plans are excluded from the Roth catch-up requirement, and Notice 2025-67 confirms the $150,000 threshold applies to applicable employer plans other than SIMPLE arrangements.
Do wages from all jobs count toward the $150,000 test?
No. Only prior-year FICA wages from the employer sponsoring the plan count. Wages from an unrelated employer, and self-employment earnings, are ignored, which is why new hires and partners typically escape the mandate.
Our payroll has been handling this since January. Do we still need an amendment?
Yes. Operating correctly does not substitute for the plan document. Most plans must adopt a conforming amendment by December 31, 2026 under Notice 2024-2, and the amendment must match what the plan actually did in operation during the year.
Is being forced into Roth catch-ups bad for the owner?
Not necessarily. The owner loses a current deduction, roughly $2,400 on an $8,000 catch-up at combined federal and New Mexico rates, but gains tax-free growth, tax-free qualified distributions, and freedom from lifetime required minimum distributions. The answer turns on expected retirement tax rates.
What if the plan has no Roth feature and does not want one?
Then participants over the wage threshold simply cannot make catch-up contributions, and the regulations permit that restriction without violating universal availability rules. Most sponsors conclude that adding a Roth feature is the better outcome for their people.
What if we discover 2026 catch-ups went in pre-tax for a covered participant?
Correct promptly. The final regulations allow a Form W-2 correction or an in-plan Roth rollover, with a small de minimis exception, and broader failures can be fixed through EPCRS. Left uncorrected, the error threatens the plan’s qualified status.
How North Star Law Firm Can Help
Retirement plan compliance sits squarely at the intersection of tax law and payroll mechanics, which is where an attorney-CPA practice earns its keep. North Star Law Firm can determine which participants a New Mexico sponsor must move to Roth catch-ups, coordinate amendment language with the recordkeeper and payroll provider before the December 31, 2026 deadline, model the pre-tax versus Roth math for affected owners, and manage corrections if 2026 operations have already drifted, drawing on its tax law and tax defense practices. Plan sponsors who want a year-end compliance review can contact the firm for a free analysis by phone or video.