A $150,000 line drawn in 2025 paychecks now decides how the Internal Revenue Service taxes retirement catch-up savings. As of the 2026 plan year, any 401(k), 403(b), or governmental 457(b) participant age 50 or older whose Federal Insurance Contributions Act wages from a single employer exceeded that threshold last year must direct every catch-up contribution into a Roth account, losing the upfront tax deduction pre-tax catch-up dollars once carried. The rule, written into the SECURE 2.0 Act of 2022 and twice delayed by regulators while they finalized the mechanics, took real effect this year after a two-year administrative reprieve expired. Some retirement plans, it turns out, cannot legally offer the option to that worker at all.
How the $150,000 Wage Line Forces a Roth Election
The mandate traces to Section 603 of the SECURE 2.0 Act, which added a new catch-up contribution rule to the tax code. Once an eligible participant’s prior-year wages under the Federal Insurance Contributions Act from the employer sponsoring the plan cross an indexed dollar line, the plan may keep letting that person make catch-up contributions only if they are designated Roth contributions made through an employee election. The Internal Revenue Service’s 2026 cost-of-living notice raised that wage threshold from $145,000 to $150,000, measured against 2025 pay, which is why the requirement is landing on a new group of savers for the first time this year. The test looks only at wages an individual earned from the specific employer running the plan, not household income, investment gains, or self-employment earnings.
A participant who crosses the line does not lose access to catch-up saving outright; the plan must keep the door open, just not on a pre-tax basis. If the participant never makes an affirmative Roth election, a plan administrator may treat the contribution as a deemed Roth election rather than reject it, a mechanic the Treasury Department and IRS spelled out in the final regulations published in September 2025. For 2026 the stakes are concrete: the standard catch-up limit for participants 50 and older rose to $8,000, while the higher limit for savers turning 60 through 63 held at $11,250. A high earner funding the full catch-up amount now shifts thousands of dollars a year from savings that trimmed a current tax bill into after-tax contributions that no longer shrink taxable income today.
The requirement reaches workplace retirement plans broadly but not universally. It covers traditional 401(k) plans, 403(b) plans sponsored by schools, hospitals, and nonprofits, and governmental 457(b) plans, capturing most workplace accounts that permit catch-up contributions at all. Congress carved out an exception for SEP arrangements and SIMPLE IRA plans, so a self-employed worker or small-business owner using one of those vehicles faces no wage test whatsoever, even at income levels well above $150,000.
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The Provision That Can Block Catch-Up Contributions Entirely
The rule carries a sharper edge for smaller employers and government agencies that never added a Roth feature to their plans. The statute ties the entire catch-up privilege to the availability of a Roth option: if a plan permits catch-up contributions at all, every affected high earner must be able to make them as Roth contributions. The IRS spelled out the consequence when a plan lacks that feature in its original 2023 guidance, warning that an employee subject to the wage threshold would be prohibited from making catch-up contributions under the plan if the sponsor never built in a qualified Roth program. That leaves plan sponsors, not just individual savers, with a choice: add a Roth feature or watch their highest-paid employees over 50 lose the ability to save above the standard $24,500 deferral limit.
The prohibition is not hypothetical for a meaningful slice of the workforce. Governmental 457(b) plans historically lagged corporate 401(k) plans in offering designated Roth accounts, and many smaller 403(b) plans sponsored by school districts, hospitals, and nonprofits went years without adding the feature because so few participants asked for it. Those sponsors now face the same requirement as large corporate plan administrators, and a plan that has not adopted a Roth program by the time an employee crosses the wage line simply cannot let that employee make catch-up contributions in 2026, regardless of how long the employee had relied on that extra savings room.
For plans that already offer a Roth option but process a high earner’s catch-up contribution incorrectly as pre-tax, the final regulations built in formal ways to fix the mistake rather than disqualify the plan outright. Sponsors can use a Form W-2 correction that reports the misclassified amount as Roth income after the fact, or an in-plan Roth rollover that moves the contribution into the participant’s designated Roth account, within deadlines the regulations set. The fix exists because the alternative, treating the whole plan as failing the catch-up rules, would jeopardize every other participant’s contributions, not just the one whose paycheck crossed the wage line.
A Wage Test Measured Job by Job, Not Household by Household
Because the $150,000 line is measured against wages from a single employer, the mandatory Roth requirement can be sidestepped by an arrangement that looks unusual on paper: a worker holding two jobs that each pay under the threshold. The IRS’s original 2023 guidance described a participant earning $100,000 from one employer and $125,000 from another, a combined $225,000, and indicated that wages from separate participating employers are not aggregated when applying the wage test, so neither job’s plan would be required to force a Roth election even though the worker’s total pay clears the line by a wide margin. The final regulations issued in September 2025 carried that employer-by-employer framework forward, specifically addressing how plans maintained by more than one employer determine which entity’s wages count.
The requirement did not arrive without warning. Congress wrote the mandatory Roth catch-up rule into the SECURE 2.0 Act in December 2022 with an original effective date of 2024, but the Treasury Department and IRS announced a two-year administrative transition period in 2023 after employers said their payroll and recordkeeping systems could not comply that quickly. That reprieve meant plans could keep treating high earners’ catch-up contributions as pre-tax through 2024 and 2025 without violating the statute. The transition period expired at the end of 2025, and the final regulations that took legal effect on November 17, 2025 confirmed that plan years beginning after that date are held to the wage-tested Roth requirement without further delay.
The same 2026 guidance that raised the catch-up wage line kept a related figure unchanged: the threshold for a “highly compensated employee” used in separate nondiscrimination testing stayed at $160,000. The two tests are not interchangeable, and a worker can be pulled into the mandatory Roth requirement without meeting the older highly-compensated definition at all, since $150,000 sits below $160,000 and the two thresholds apply to different rules measured on different wage years.
What began as a narrow revenue-raising provision buried in a sprawling 2022 spending bill has turned into a structural test of how prepared mid-sized retirement plans are to run a Roth program. The dollar threshold will keep climbing with inflation, pulling a wider band of savers past $150,000 in wages from a single job in the years ahead, while sponsors that delayed adding Roth features now confront employees who can no longer make the catch-up contributions they had counted on late in their working years. Whether a saver feels the change as a shift in tax timing or as a contribution cut off altogether depends less on income alone than on whether an employer’s plan document was updated in time.
This article was researched and drafted with the assistance of artificial intelligence.
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