Beginning January 1, 2026, certain higher‑earning employees who make catch‑up contributions to employer‑sponsored retirement plans (e.g., 401(k), 403(b), governmental 457(b)) must make those catch‑up contributions on a Roth (after‑tax) basis. This requirement comes from SECURE 2.0 Act §603 and is now fully clarified through final IRS regulations issued in September 2025.
What’s Changing?
- Effective January 1, 2026, employees who earned more than $150,000 in Social Security (FICA) wagesin the prior calendar year will be required to make their catch-up contributions to a Roth 401(k) account (after-tax basis).
- The $150,000 threshold for 2026 will be indexed annually for inflation.
- Employees earning $150,000 or lesswill still have the option to make catch-up contributions on either a pre-tax (traditional) or Roth (after-tax) basis.
Key Details
- Eligibility for Catch-Up Contributions
- Employees age 50 and olderare eligible to make catch-up contributions in addition to the annual IRS deferral limit.
- For 2025, the 401(k) deferral limit is $23,500, with an additional $7,500catch-up contribution allowed (total $31,000).
- Mandatory Roth for High Earners
- If your prior year FICA wages reported exceeded the indexed threshold of $150,000 your catch-up contributions must go to a Roth 401(k).
- Traditional pre-tax catch-up contributions will no longer be available for these employees.
- Effectively, if an employer does not offer a Roth option, these high-earning employees cannot make catch-up contributions at all.
- Employer Plan Requirement
- To remain compliant, plans must now offer a Roth contribution option.
- If a plan does not offer Roth contributions, no catch-up contributions of any kind will be permitted.
Example
- Employee Ais 55 years old and earned $180,000 in W-2 wages in 2025.
- In 2026, Employee A contributes $23,500 pre-taxto their 401(k).
- They are eligible to make a $7,500 catch-up contribution, but under the new law, that amount must be contributed as Roth (after-tax).
- Employee A will pay taxes on the $7,500 in 2026, but the contribution will grow tax-free and can be withdrawn tax-free in retirement (subject to Roth rules).
Planning Considerations
- Tax planning: High earners should prepare for the upfront tax impact of Roth catch-up contributions. This may increase current-year taxable income but provides tax-free growth and withdrawals in retirement.
- Retirement diversification: Having both traditional and Roth accounts may provide more flexibility in retirement for tax-efficient withdrawals.
- Employer readiness: Employers must ensure their retirement plan documents and payroll systems are updated by January 1, 2026, to comply with this requirement.
- Clear communication: It is essential for employees to understand why their catch-up contributions are now after tax, how this impacts their take-home pay, and the long-term benefits of Roth contributions.
References & Guidance
- SECURE 2.0 Act of 2022, Section 603 – Mandatory Roth treatment for catch-up contributions for certain high-income individuals.
- IRS Notice 2023-62– Provides a two-year administrative transition period, delaying the effective date to 2026.
- Internal Revenue Code § 402(g)(1)(C)– Governs catch-up contributions.
- IRS Retirement Plans FAQs– Retirement Plan FAQs
Next Steps
We recommend:
- For Employers:Work with your retirement plan administrator and payroll provider to confirm Roth contribution features are now available.
- For Employees:Review your current and projected income, and consider consulting with a tax advisor to understand the impact of Roth catch-up contributions on your financial plan.
- For Both:Stay updated on IRS inflation adjustments, as the $150,000 income threshold will rise over time.