When Congress passed the SECURE 2.0 Act in late 2022, it was billed as one of the most significant retirement reforms in decades. The law aimed to expand access, simplify participation, and increase savings opportunities for American workers. Tucked inside, however, was a provision that dramatically changes how older, higher-income workers can make “catch-up” contributions.
Beginning in 2027, some retirement savers will no longer be able to choose between pre-tax or Roth for their catch-up dollars. Instead, they will be required to make those extra contributions as Roth, meaning after-tax money today in exchange for tax-free withdrawals later.
This first article in our two-part series explains the rules in detail: who is affected, when the change begins, and how it interacts with other SECURE 2.0 provisions. In Part 2, we’ll turn to practical strategies you can use to prepare.
What Are Catch-Up Contributions?
The IRS sets annual limits on how much you can contribute to workplace retirement plans like 401(k)s and 403(b)s. For 2025, the standard deferral limit is $23,000. But workers aged 50 or older can put in an additional $7,500, known as a catch-up contribution.
These catch-ups are important for late-career savers who want to accelerate their nest egg. Historically, you could choose whether to make them on a pre-tax basis (reducing current taxable income) or a Roth basis (no deduction now, but tax-free in retirement), provided your plan allowed both.
The New Rule: Mandatory Roth for High Earners
Starting in 2027, the SECURE 2.0 Act requires that catch-up contributions must be made as Roth if:
- You are age 50 or older, and
- Your prior year’s wages from the employer sponsoring the plan were more than $145,000 (indexed for inflation).
That income threshold is based on FICA wages, which are generally reported in Box 3 of your Form W-2. If you’re below the threshold, you can still choose pre-tax or Roth. If you’re above it, Roth is your only option.
Key Dates & Transition Relief
- Original Effective Date: January 1, 2024.
- IRS Delay: In Notice 2023-62, the IRS granted an administrative transition period, giving plan sponsors until the end of 2025 to prepare.
- Final Regulations (2025): Treasury clarified many details, and the final applicability date is now January 1, 2027.
- Good Faith Compliance: During 2025–2026, plan sponsors have flexibility and won’t be penalized if they operate under a reasonable interpretation of the law.
Other SECURE 2.0 Provisions That Interact
- Super Catch-Up (Ages 60–63): Beginning in 2025, participants in this age band may contribute up to 150% of the standard catch-up limit. If you earn above the $145,000 threshold, those “super” catch-ups must also be Roth.
- Plan Amendments Required: Employers must update plan documents to permit Roth contributions if they don’t already. The amendment deadline for SECURE 2.0 changes is December 31, 2026.
- Payroll & Administration: Employers must track which participants cross the income threshold and automatically reclassify catch-up contributions as Roth.
Why This Change?
Congress designed this provision for two reasons:
- Revenue: Roth contributions generate tax revenue today since they aren’t deductible, helping offset the cost of other SECURE 2.0 provisions.
- Diversification: Encouraging Roth balances builds a system where more retirees have tax-free income, providing flexibility and resilience against future tax hikes.
Example Scenarios
Scenario 1: Sarah, Age 52, Earning $130,000
- Base contribution: $23,000 pre-tax.
- Catch-up: $7,500.
- Because Sarah’s wages are below $145,000, she can choose to make the catch-up pre-tax, Roth, or a mix (if the plan allows).
Scenario 2: James, Age 58, Earning $200,000
- Base contribution: $23,000 pre-tax.
- Catch-up: $7,500.
- Because James is above the threshold, his $7,500 catch-up must be Roth. He can’t take the deduction anymore, even though his base contributions remain eligible for pre-tax.
Scenario 3: Linda, Age 61, Earning $170,000
- Base contribution: $23,000 pre-tax.
- Catch-up: “Super” allowance of $11,250 (150% of $7,500).
- Her entire $11,250 catch-up must be Roth.
FAQs
Does this apply to IRA catch-ups?
No. The rule only applies to employer-sponsored plans like 401(k)s and 403(b)s. IRA catch-up contributions aren’t affected.
What if my employer doesn’t offer Roth?
They’ll need to amend the plan. Without a Roth option, higher earners wouldn’t be able to make catch-ups at all — a compliance issue employers will need to fix before 2027.
Do bonuses count toward the $145,000 threshold?
Yes, if they are subject to FICA taxes. The IRS clarified that the threshold is based on wages reported in Box 3 of the W-2.
Bottom Line
The Roth catch-up requirement marks a significant shift for older, higher-income savers. While it eliminates the upfront tax deduction, it also creates long-term opportunities for tax-free income in retirement. Now that you know the mechanics, the next step is to think about strategy. In Part 2, we’ll explore how to plan ahead — from tax projections to portfolio diversification — so you can make the most of this change.
Not sure how the new Roth catch-up rule might impact your retirement savings? Connect with our team.
This article was generated with the assistance of OpenAI's ChatGPT to support clarity and readability. All content has been reviewed and verified by a qualified financial professional to ensure accuracy and alignment with industry standards. This blog is intended for informational purposes only and should not be considered legal or financial advice.