Starting in 2026, workers age 50 and older who earned more than the inflation-indexed $145,000 threshold in the prior year will lose the option to make pre-tax catch-up contributions to their 401(k) plans. Instead, every dollar of catch-up savings must flow into a designated Roth account and be taxed upfront. The rule, enacted as Section 603 of the SECURE 2.0 Act, was delayed by IRS transition relief through the end of 2025, but Treasury and the IRS have now finalized the regulations, removing any remaining ambiguity about the 2026 start date.
Why the Roth Catch-Up Mandate Hits Higher Earners in 2026
The core tension is straightforward: higher-earning participants who have been reducing their taxable income through pre-tax catch-up contributions will now face a larger current-year tax bill. For someone in the 32% or 35% federal bracket, the shift to after-tax Roth treatment on up to $7,500 in annual catch-up contributions means an immediate increase in out-of-pocket cost, even though the money will eventually grow and be withdrawn tax-free in retirement.
That tradeoff creates a real behavioral question for plan sponsors. Plans that automatically default affected participants into Roth catch-up elections could see some workers quietly reduce or stop their catch-up saving rather than absorb the higher current cost. Plans that instead require an affirmative election may find that inertia works in the opposite direction, with participants simply not opting in at all. Either design choice carries the risk of lower overall deferral rates among the very workers closest to retirement.
Congress set the wage threshold at $145,000 limit indexed for inflation when it passed the provision as part of the Consolidated Appropriations Act, 2023. The determination is based on prior-year wages from the same employer, which means 2025 compensation is the measuring stick for 2026 contributions. Employees who work for multiple employers may be above the threshold in aggregate but below it with a particular plan sponsor; in that case, the employer looks only to the wages it paid when deciding whether the Roth mandate applies.
For those under the threshold, nothing changes: they can continue to make catch-up contributions on either a pre-tax or Roth basis, depending on what the plan allows. The new restriction is targeted squarely at higher earners, effectively turning their catch-up dollars into a source of immediate tax revenue for the government while still preserving the long-term tax-free growth associated with Roth accounts.
How Treasury and IRS Finalized the Roth Catch-Up Rules
The path from statute to enforceable regulation took longer than Congress originally intended. When the SECURE 2.0 Act was signed into law in late 2022, the Roth catch-up requirement was supposed to take effect in 2024. Plan administrators and payroll providers quickly flagged operational problems, including the difficulty of tracking prior-year wages across employers and updating systems to segregate Roth catch-up dollars from regular Roth deferrals.
In response, the IRS published Notice 2023-62 in Internal Revenue Bulletin 2023-37, granting administrative transition relief that pushed the mandatory effective date to 2026. The notice clarified that plans would not be treated as failing to meet qualified plan requirements solely because they continued to accept pre-tax catch-up contributions during the relief period, and it previewed the agency’s intended approach to several technical questions.
Among other points, the notice indicated that the $145,000 compensation test would rely on wages subject to FICA taxes reported in Box 1 of Form W-2, and that the determination would be made separately for each employer sponsoring a plan. It also signaled that the IRS expected plans to offer Roth catch-up contributions if they wished to continue allowing any catch-up contributions at all, effectively tying the ability to offer catch-ups to the availability of a Roth source for higher earners.
Treasury and the IRS then issued final regulations under IR-2025-91, confirming the operational framework. The final rules address how employers must identify affected participants based on prior-year wages, how to coordinate catch-up elections with existing plan deferral elections, and how to treat midyear changes in employment or plan participation. They also affirm that if a plan permits catch-up contributions, it must make a Roth catch-up option available for participants who cross the wage threshold.
For plan sponsors, the regulations underscore the need for close coordination among HR, payroll, recordkeepers, and advisors. Systems must be able to flag individuals whose prior-year wages exceed the indexed threshold, route their age-50-plus catch-up dollars into a Roth source, and communicate clearly to participants why their tax treatment is changing. Employers that currently lack a designated Roth account in their 401(k) will need to amend their plans if they want to preserve catch-up contributions after 2025.
For workers nearing retirement, the final rules mean that planning for 2026 and beyond should account for the loss of pre-tax catch-up contributions if their wages exceed the threshold. Some may choose to increase regular pre-tax deferrals up to the annual limit to partially offset the higher tax bill on Roth catch-ups; others may welcome the forced diversification into Roth savings. Either way, the regulatory picture is now settled, giving both sponsors and participants a finite window to adjust before the new mandate takes hold.
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