Mandatory Roth catch-up in 2026

[Belgarath]

Suppose you have a governmental 501(c)(3) 403(b) plan. They (the employer) does not participate in Social Security. So, are their W-2 wages considered "FICA" wages? I've never really thought about this type of situation, but was having a discussion with an old college friend where this came up. There's no actual plan involved - this is purely for sake of discussion. I'm feeling particularly geeky this morning, as this actually seems interesting to me, which is a little scary. I need to get out more...

If they don't participate in Social Security, I don't see how they could be FICA wages...

[Peter Gulia]

Belgarath, you see another of the many infelicities in Congress’s work on the 2022 tax legislation.

Internal Revenue Code § 414(v)(7)’s (or § 457(e)(18)(A)(ii)’s) constraint against non-Roth contributions does not apply to a participant without Federal Insurance Contributions Act (“FICA”) wages from the employer.

That could result if the participant was a State or local government employee whose services were excluded from § 3121(b)(7)’s definition of employment.

Of more immediate interest to some TPAs, § 414(v)(7) applies differently regarding otherwise similarly situated workers following whether the worker is, regarding the employer or deemed employer, an employee or a partner or other self-employed individual.

To illustrate the point: A law firm’s 51-year-old partner whose preceding year’s compensation was $2 million is unburdened, but a 51-year-old associate or counsel whose compensation was as little as $200,000 is stuck with § 414(v)(7).

[C. B. Zeller]

The preamble to the 2025 proposed regulations also mentions 3121(b)(7) service as an exclusion:

Quote

Accordingly, an individual who did not have any FICA wages from the employer sponsoring the plan for the preceding calendar year (for example, a partner who had only self-employment income; an individual who had wages under section 3231(e) that are subject to taxation under the Railroad Retirement Tax Act, codified at title 45, chapter 9 of the United States Code, rather than FICA; or a State or local government employee whose services were excluded from the definition of employment under section 3121(b)(7) without regard to section 3121(u)) would not be subject to the Roth catch-up requirement under the plan in the current year. 

https://www.federalregister.gov/d/2025-00350/p-47

[Belgarath]

Thanks.