A 55-year-old project manager earning $160,000 just saw her paycheck shrink, and she did not get a pay cut. Starting in 2025, a provision of the SECURE 2.0 Act forces workers over 50 who earned more than $145,000 from their employer in the prior year to make all catch-up contributions to their 401(k) on a Roth basis. That means taxes are owed now, not decades from now in retirement. For someone in the 24% federal bracket, the full $7,500 catch-up amount triggers roughly $1,800 in additional federal income tax this year alone, and state taxes can push the hit even higher.
How the Roth catch-up rule works
A quick refresher on the two flavors of 401(k) contributions. A traditional (pre-tax) contribution reduces your taxable income in the year you make it. You pay taxes later, when you withdraw the money in retirement. A Roth contribution works in reverse: you pay income tax on the money now, but qualified withdrawals in retirement come out completely tax-free, including all the investment growth.
The standard employee contribution limit for 401(k) plans in 2025 is $23,500. Workers who turn 50 or older by the end of the year can contribute an additional $7,500 in catch-up contributions, bringing their total possible deferral to $31,000. A separate “super catch-up” provision in SECURE 2.0 allows workers aged 60 through 63 to contribute up to $11,250 in catch-up dollars instead of $7,500, for a potential total of $34,750. That higher limit applies under the same Roth requirement described here.
Before 2025, all catch-up contributions could go in pre-tax, regardless of income. Now, Section 603 of the SECURE 2.0 Act draws a hard line: if your wages from the employer sponsoring the plan exceeded $145,000 in the prior calendar year, your catch-up contributions must be designated Roth. Workers earning $145,000 or less from that employer still have the choice between pre-tax and Roth for their catch-up dollars.
One detail that trips people up: the $145,000 threshold is based on FICA wages from the specific employer sponsoring the plan, not your household’s total adjusted gross income. A worker earning $130,000 from one employer and $50,000 in freelance income would not be subject to the mandatory Roth rule through that employer’s plan.
The rule also extends beyond 401(k) plans. Workers in 403(b) plans and governmental 457(b) plans face the same requirement if they cross the income threshold.
Where the rule comes from and how it is being enforced
The provision traces to the SECURE 2.0 Act, which Congress enacted as part of the Consolidated Appropriations Act of 2023. The IRS clarified the mechanics in Notice 2023-62, confirming the $145,000 threshold and granting transition relief so plan sponsors would have time to update payroll systems and recordkeeping platforms.
Treasury and the IRS then issued final regulations in early 2025, updating the catch-up rules under the Internal Revenue Code. Those regulations allow plans to implement the Roth catch-up requirement for tax years beginning before 2027 using what the agencies call a “reasonable, good-faith interpretation” of the statute. In plain terms, regulators are giving employers room to get the mechanics right without facing penalties for minor technical missteps during the rollout.
The formal deadline for adopting required SECURE 2.0 plan amendments is December 31, 2026, per IRS guidance. That gap between operational compliance and the paperwork deadline means many employers are already withholding catch-up dollars on an after-tax Roth basis for higher earners, even if their written plan documents have not yet been formally updated. Workers may notice Roth catch-up deductions on their pay stubs well before their employer sends out revised summary plan descriptions.
Open questions workers should track
Several practical questions remain relevant as of June 2025. Employer communication practices vary widely. Some large plan sponsors have sent targeted notices, offered paycheck-modeling tools, or held enrollment webinars explaining the shift. Others have done little more than update their benefits portals, leaving workers to discover the Roth requirement when their net pay drops. If your employer has not proactively explained the change, that is a reason to ask your HR department directly rather than wait.
It is also unclear how aggressively the IRS plans to audit compliance during the transition period. The regulations in 26 CFR Section 1.414(v)-2 outline correction procedures for plans that fail to properly verify prior-year wages or that incorrectly allow pre-tax catch-up contributions for affected participants. But the agencies have not publicly detailed their enforcement priorities. For workers at smaller employers with limited benefits staff, this means it is worth double-checking your own pay stubs rather than assuming the plan got it right automatically.
What happens if your plan does not offer a Roth option
This is a question many workers have not thought to ask. Under the final regulations, if an employer’s 401(k) plan does not currently include a Roth contribution option, the plan must add one for affected employees to continue making catch-up contributions. If the plan sponsor chooses not to add a Roth option, workers over 50 who exceed the $145,000 threshold simply cannot make catch-up contributions at all through that plan. For those workers, the result is not just a tax change but a potential loss of $7,500 or more in annual retirement savings capacity.
Most large employers already offer Roth 401(k) options, but smaller companies may not. If you are unsure whether your plan includes a Roth feature, check with your HR department or plan administrator sooner rather than later.
What affected workers should consider now
If you are over 50, earn more than $145,000 from your employer, and have been making pre-tax catch-up contributions, the most immediate effect is a smaller paycheck. The catch-up dollars still go into your 401(k), but because they are now Roth, federal and state income taxes are withheld before the money reaches your account. Your gross contribution stays the same; your net pay does not.
That said, the long-term math is not necessarily worse. Roth contributions grow tax-free, and qualified withdrawals in retirement owe nothing to the IRS. For workers who expect to be in a similar or higher tax bracket in retirement, or who want more flexibility in managing taxable income later, the forced Roth treatment could actually work in their favor over a 10- to 20-year horizon. Roth 401(k) balances are also not subject to required minimum distributions after being rolled into a Roth IRA, giving retirees more control over when and how they draw down savings.
A few steps worth taking:
- Check your latest pay stub. Confirm whether your catch-up contributions are already being coded as Roth. If they are still showing as pre-tax, contact your HR or benefits department to ask about the plan’s timeline for compliance.
- Revisit your budget. The reduction in take-home pay may be modest or significant depending on your marginal federal and state tax rates. In high-tax states like California or New York, the combined hit on $7,500 in catch-up contributions can exceed $2,500. Run the numbers so the change does not catch you off guard mid-year.
- Look at your overall Roth exposure. If you are also contributing to a Roth IRA or making Roth conversions, the mandatory Roth catch-up adds to the tax bill in the current year. A tax advisor can help you decide whether to adjust other Roth activity to manage the total impact.
- Do not skip the catch-up entirely. Dropping out of catch-up contributions to avoid the upfront tax means forgoing $7,500 (or $11,250 if you are 60 to 63) in tax-advantaged retirement savings each year. For most higher earners, the long-term cost of skipping likely outweighs the short-term sting of paying taxes now.
How the $145,000 threshold could shift for 2026 and beyond
Because the rule is based on prior-year wages, the 2025 requirement looks at what you earned in 2024. Workers whose 2024 wages were just above $145,000 may want to review whether any changes in compensation, job switches, or bonus structures could put them below the threshold in future years, restoring the pre-tax option for catch-up contributions.
The $145,000 threshold is indexed for inflation, so it will adjust over time. The IRS has not yet announced the figure for the 2026 plan year (which would be based on 2025 wages). Workers near the boundary should watch for that update, typically released in the fall as part of the annual cost-of-living adjustments.
For now, the core reality is straightforward: the Roth catch-up rule for higher earners is in effect, the legal framework is settled, and the government has built in a multi-year transition period for employers to get their systems in order. The workers feeling it most are those just above the $145,000 line, where the after-tax hit is proportionally steepest relative to total pay. Whether the forced Roth treatment turns out to be a burden or a benefit depends on where tax rates land when retirement arrives, a question no one can answer today but everyone affected should be planning around.
