SECURE 2.0’s Mandatory Roth Catch-Up Rule: What It Means for Your 2026 Payroll QuickBooks Online & Desktop

If you have employees age 50 or older who make “catch-up” 401(k) contributions, 2026 brings an important change. High earners can no longer make those contributions on a pre-tax basis. They must be designated as after-tax Roth contributions instead.

The tricky part isn’t just knowing the rule, it’s that neither QuickBooks Online (QBO) Payroll nor QuickBooks Desktop (QBD) Payroll fully automates this transition. As the employer or bookkeeper managing payroll, you’ll need to make some manual adjustments to stay compliant. Here’s what you need to know and how to handle it on both platforms.

2026 Contribution Limits at a Glance

The Mandatory Roth Catch-Up Rule

Under SECURE 2.0, catch-up contributions for higher earning employees are now restricted:

• The $150,000 threshold: If an employee’s prior-year (2025) FICA wages from your company exceed $150,000, any catch-up contributions they make in 2026 must be designated as after-tax Roth. Wages sitting at $150,00, not above it, don’t trigger the mandate.
• No more pre-tax catch-up for high earners: Once an employee crosses the threshold, they aren’t permitted to make pre-tax catch-up contributions anymore.
• No Roth option, no catch-up: If your company’s 410 (k) plan does not offer a Roth contribution feature, employers are barred from offering catch-up contributions at all.

For employees below the $150,000 threshold, nothing changes. They can still choose pre-tax or Roth catch-up contributions as before.

Why This Creates Work in QuickBooks

Both QBO and QBD Payroll are built around a single 401(k) deduction item that can either be pre-tax or Roth, not both and not a switch midyear. Neither platform will automatically:

• Split an employee’s base deferral from their catch-up deferral or
• Convert a deduction from pre-tax to Roth once an income threshold is crossed.

That means for any employee subject to the mandatory Roth rule, you’ll need to set up a second, separate deduction item specifically for their catch-up contributions and manage the two items so they don’t exceed their individual limits.

Setting This Up in QuickBooks Desktop (QBD) Payroll

QBD manages limits at the global Payroll Item List level rather than purely in individual profiles, so setup is slightly different:

1. Create the two payroll items globally, if you haven’t already:

• Lists > Payroll Item List > Payroll Item > New > Custom Setup > Deduction

• Pre-tax item: Tax Tracking Type = 401(k) Pre-Tax, annual limit $24,500

• Roth catch-up item: Tax Tracking Type = Roth 401(k), annual limit $8,000 (or $11,250 for ages 60–63)
  
  
  

2. Assign both items to the employee’s profile:

• Open the Employee Center, double-click the employee’s name, go to Payroll Info.
  
  
  

3. Unlike QBO, QBD lets you run both items concurrently on the same paycheck without a workaround. Each item stops automatically once it hits its own annual limit.

Correcting Contributions Already Withheld as Pre-Tax

If you’ve already run January 2026 payroll and mistakenly withheld a high earner’s catch-up contribution as pre-tax, you’ll need to correct it manually in both systems since QuickBooks cannot reclassify a finalized paycheck automatically.

In QBO: Run an adjustment/bonus-only check for the employee, entering a negative amount against the pre-tax 401(k) item and an equal positive amount against the Roth catch-up item, so the check nets to $0. This corrects your tax tracking and adds the amount back into taxable wages for W-2 reporting.

In QBD: Use Employees > Enter Payroll Adjustments, select the employee, and make the same offsetting negative/positive entry between the pre-tax and Roth items.

Important: this fixes your internal payroll records only. You still need to contact your third-party 401(k) recordkeeper (e.g., Fidelity, Empower, Guideline) directly and ask them to formally recharacterize the funds inside the employee’s actual investment account because QuickBooks has no connection to that.

Have Questions?

Navigating SECURE 2.0’s new Roth catch-up rule alongside your existing payroll setup can get complicated, especially when corrections and multiple deduction items are involved. If you have questions about how this applies to your business, contact the CAAS team at CK. Reach out to our team today to make sure your 2026 payroll stays accurate and compliant.

This post is intended as general guidance on payroll administration, not tax or legal advice. Contribution limits, thresholds, and QuickBooks workflows can change. Confirm current details with your 401(k) plan administrator, tax advisor, or QuickBooks support before making changes to payroll.