You have an important change to be aware of if you’re age 50 or older, earn more than $145,000, and plan to use catch-up contributions in your 401(k), 403(b), or 457(b). Under the SECURE 2.0 Act of 2022, all catch-up contributions for higher-income earners will be required to go into the Roth portion of the plan beginning in 2026.
Under the new rule, if a participant is eligible to make a “catch-up” contribution (i.e., age 50 or older) and their prior-year wages exceed a specified threshold, then any catch-up contributions must be made on a Roth (after-tax) basis. The pre-tax (traditional) option will no longer be available for those catch-up dollars. Here are the basics:
For 2026, participants age 50-plus who had more than $145,000 in FICA wages (or the indexed threshold) from an employer in the prior year will be required to contribute their catch-up contributions into the Roth side of their plan.
The threshold is indexed for inflation in future years.
The rule applies to “age-50-plus catch-up” contributions in 401(k), 403(b), and most 457(b) plans. There are special rules and carve-outs for governmental plans, collective bargaining plans, and the “super catch-up” for ages 60-63.
An Exception That FRS Special Risk Participants Should Note
A key exception, and notable for many of our FRS Special Risk clients, is a special catch-up provision available in governmental 457(b) plans (and similarly in other plans). The provision allows a participant, in the three years immediately preceding normal retirement age, to make additional contributions (often up to twice the normal elective deferral limit) because of unused amounts from prior years. This is often referred to as the “final three-years” catch-up.
Implications of the New Rule
This new rule causes a couple of serious implications.
First, pre-tax catch-up contributions reduce current taxable income, whereas Roth catch-up contributions are made with after-tax dollars. This means for high-earning participants, the upfront tax benefit goes away for catch-up dollars, though future qualified Roth distributions are tax-free. High-earning participants will need to consider the impact of losing the traditional pre-tax option for catch-ups: how it affects current tax vs. future tax, and whether they may prefer to adjust their overall contribution strategy.
Second, plan sponsors need to update their plan documents, systems, and participant communications to account for the change. In some cases, if a retirement plan doesn’t allow Roth catch-up contributions, the plan may need to either amend to allow them or disallow catch-up contributions for affected participants. This will keep plan administrators pretty busy the next few months.
We’re Here to Help
The new Roth requirement for catch-up contributions is one of those behind-the-scenes changes that may quietly affect a subset of retirement savers, but it can have meaningful tax and strategic consequences for high earners.
At Northstar Financial Planners, we can help you navigate how this fits into your retirement savings trajectory: whether you adjust contribution approaches, evaluate the tax impact, or ensure your employer-plan setup is ready. As always, we’re here to help.