Over the past several years, provisions from the SECURE 2.0 Act have been rolling out in stages. Many of these changes require coordination between payroll providers, recordkeepers, and plan administrators, which is why implementation has been gradual rather than immediate. As we move through 2026, another change is taking effect—one that will directly impact many practice owners.

A New Label, A Different Impact

Beginning in 2026, a new classification of employee will apply within 401(k) plans: Highly Paid Individuals (HPIs). An HPI is defined as someone who earned more than $150,000 in W-2 compensation in the prior year, with that threshold subject to future inflation adjustments. For these individuals, there is a meaningful shift in how catch-up contributions are treated. If you are over age 50 and meet the HPI definition, your catch-up contributions must now be made as Roth contributions.

At first glance, this employee classification sounds similar to the more familiar Highly Compensated Employee (HCE) designation. However, the two serve entirely different purposes. HCE status—generally defined as earning over $160,000 in the current year, subject to inflation adjustments, or owning more than 5% of the practice—relates to nondiscrimination testing and plan design. The new HPI designation is narrower in scope, applying specifically to how catch-up contributions are taxed. The similarity in terminology can create confusion, but the distinction is important.

Why This Should Be On Your Radar

To understand the impact, it helps to revisit how catch-up contributions work. These contributions allow individuals age 50 and older to defer additional income into their retirement plan beyond the standard deferral limit. In 2026, that amount is $8,000 for those ages 50 to 59 and 64 and older. For individuals between ages 60 and 63, a “super catch-up” provision allows for up to $11,250. Historically, participants could choose whether these contributions were made on a pre-tax or Roth basis. Under the new rule, that flexibility is removed for HPIs. Regardless of your broader tax strategy, catch-up contributions must now be Roth.

An Important Planning Nuance

Traditional contributions reduce taxable income today, with taxes paid upon withdrawal in retirement. Roth contributions, by contrast, are taxed in the year they are made, with future withdrawals—both principal and earnings—generally tax-free. Both structures can be valuable depending on your situation. However, for higher-income practice owners who have historically relied on pre-tax contributions to manage current tax liability, this rule represents a shift. It does not eliminate planning opportunities, but it does change how they are executed.

One of the more overlooked aspects of this rule is how the income threshold is measured. The $150,000 test is based on W-2 wages subject to the Federal Insurance Contributions Act (FICA) from the employer sponsoring the plan—not your adjusted gross income. For practice owners, this distinction matters. Compensation structure, particularly the balance between W-2 income and distributions, may influence whether the rule applies. In multi-entity or multi-practice settings, this becomes even more complex.

For those working across multiple practices as a W-2 employee, the rule is applied at the plan level based on wages from each employer. However, your overall deferral limit is still determined at the individual level. Participating in multiple 401(k) plans does not increase the total amount you are allowed to defer. This is an area where coordination is critical, as it is easy to unintentionally exceed limits or misclassify contributions without a clear understanding of how the rules interact.

Structural Considerations at the Plan Level

While Roth contributions have been around for decades, not all 401(k) plans are required to include a Roth feature. Most modern plans do, but the practice is not universal. If a plan does not currently allow Roth contributions, it will need to be amended to accommodate this requirement. For plan sponsors, this is a relatively straightforward fix, but it is not something that should be discovered after the fact.

In addition, not all practice owners will be subject to this rule. Because the threshold is tied to W-2 wages, individuals who are self-employed as sole proprietors or who operate under certain partnership structures without FICA wages may be excluded. This highlights a broader theme that runs through many retirement plan rules: the intersection between entity structure, compensation design, and tax planning.

Where this rule becomes more challenging is in its implementation. In practice, there is not yet a consistent approach across payroll providers and recordkeepers. Some are proactively identifying individuals who meet the HPI threshold, while others are relying on plan sponsors to confirm eligibility. Payroll systems vary in their ability to distinguish between standard deferrals, catch-up contributions, and now Roth-designated catch-up contributions. As a result, there is a degree of operational uncertainty heading into 2026.

In Conclusion

For practice owners, the takeaway is straightforward. Do not assume that your providers have this fully handled. A brief conversation with your payroll company, recordkeeper, or advisor can help clarify how this will be administered within your plan and help avoid unnecessary issues down the road.

Stepping back, this change is best viewed not as a limitation but as an adjustment to how tax diversification can be incorporated into your overall strategy. For many practice owners, the 401(k) is more than a retirement account—it is a key lever in aligning practice income with long-term wealth creation. Changes like this create an opportunity to revisit how compensation, retirement plan design, and broader tax planning fit together.

As with many aspects of financial planning for practice owners, the goal is not simply to follow the rules, but to understand how they interact. When approached thoughtfully, even incremental changes like the Roth catch-up requirement can be integrated into a more cohesive and intentional financial strategy. If you have questions about how the Roth catch-up could impact you or your practice, we would love to help. Schedule a conversation with a practice integration advisor today!

Sources:

https://www.cpajournal.com/2026/03/26/required-roth-catch-up-contributions-for-2026-2/

https://www.irs.gov/retirement-plans/issue-snapshot-401k-plan-catch-up-contribution-eligibility

https://www.napa-net.org/news/2025/11/whats-going-on-with-the-2026-irs-retirement-plan-limits-an-explanation/#:~:text=That%20meant%20the%202025%20super,%2Dliving%20adjustments%20(COLA).